Is The Market Entering A Consolidation Phase?
Since March of this year the stock market has seen tremendous growth on the road to recovery from the economic recession. A 60 percent surge in the market, along with solid third quarter earnings reports, the indicators are in place to show that the worst days are far behind us.
While the signs or recovery are plentiful, this week we've already seen a 3% correction in stocks. So why are investors not showing an eagerness to keep buying?
As third quarter earnings reports continue to roll in beating estimates, it seems only a handful of stocks are reaping the benefits. Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) are receiving the buzz, while other companies showing a resurgence in profits are struggling to make headway.
Will the confidence in Wall Street return? Or have too many investors lost too much money to have faith in the markets stability to jump back in?
The fact may be that the market turned up with such a surge that many investors are still playing catch up. The dip of the past days may be a sign of the near future as the market settles in before making another move forward.
"We might see the market come down a full 10 percent before seeing it consolidate and then reestablish a level from which it can continue moving up again," John Stoltzfus, Director and Senior Market Strategist at Ticonderoga Securities told StreetInsider.com today.
Stoltzfus explained that he sees a slow-grinding move forward after the market settles, instead of a sharp increase. He noted the irony that people thought the U.S., the first one into the recession, would emerge as the first out. However, in fact the U.S. was first in, dragging the rest of the world along in with them; however it will in fact be other countries implementing exit strategies first.
According to Stoltzfus the exit strategies for a way out of the recession are coming from those countries that are comfortable enough to raise rates.
Stoltzfus is looking for the Fed to raise rates in the U.S. not before the second half of 2010. This move by the Fed may only contribute to anxious sentiment among investors.
"Some investors may never come back and part of that is demographic and part is the realization of how dangerous of an environment that it is," Art Hogan, Jefferies' Chief Market analyst told StreetInsider.com.
Hogan stated that if the market continues to show a level of stabilization well into 2010, then investor will be more likely to participate. "It's going to take longer than a couple of quarters to recover," Hogan added.
Both analysts agree that optimism will return as the market shows consistency, however the road to recovery is not going to be a sprint, it will be a marathon.
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