Tuesday, May 17, 2011

US Stocks Falling Left and Right Today

It has not been a good week thus far for the stock market. Stocks across the board are falling, more precipitously today than even yesterday. This is not good news for investors like myself -- although I may not an active trader.

In terms of my own holdings, I am looking at a 2% drop in portfolio value; this is thanks to the 2% average drop in the stock prices for three I own. This doesn't come as a surprise because my two major holdings (Ford and GE) are both blue-chip stocks. Blue-chip stocks tend to fluctuate in line with market movements.

What came as a surprise is the extent of the pessimism in the stock market today. Even for Wal-Mart, who reported an increased profit, stock prices have dropped. Perhaps its stock price was negatively impacted by the performance of Hewlett Packard. So how can this be? The pessimism can be attributable to the two dark clouds hovering across the financial skies.

The first dark cloud is the news of disappointing housing market performance in the United States for the past month. This is especially acute for property builders. The housing market is an important indicator for the health of the U.S. economy because so many things depend on the availability of housing. In other words, there are extensive implications for the housing market. For example, revenues for home-improvement retailers like Lowe's and Home Depot are intrinsically tied to the housing market. Less obvious positive correlations such as car sales and general consumption (food, luxury goods) also depend on the housing market.

The second dark cloud (maybe the darker) is the current quagmire of the European debt crisis. Like it or not, national economies are all interrelated in today's world and a debt crisis in the EU will spread across to the Atlantic. Greece and Portugal are the culprits for the EU debt crisis -- and attention on their ability to repay debts leads to greater scrutiny upon its neighbors like Spain. Fear is very contagious in the financial markets.

Overall, I am predicting that the pessimistic sentiment will carry through the end of this week. But it should not persist until the following week -- investors and traders tend to be myopic and will either ignore or forget the bad news when good new arrive.

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