Market in Process of Discounting Negatives

George Brooks |

George Brooks Stock MarketSuddenly, it seems that there is nothing for investors to hang on to, much less look forward to. We have had a decent economic recovery from the recession’s end two years ago, but it hasn’t been accompanied by a recovery in employment.

In recent weeks, we have seen a string of weak economic reports, the usual uncertainties out of Europe and the Mid-East, and now angst accompanying Congressional approval of raising the nation’s debt ceiling. Failure to do so would lead to a default on certain U.S. obligations – serious stuff.

Q3 earnings reports are months away, and I doubt they will make great reading. In fact, we may have to endure numerous downward revisions in coming months.

The market is currently seeking a level that discounts all this.

Today: A positive open, plus 75 to 105 Dow points possible by 10 o’clock, however any attempt to turn the corner here would be premature, without some relief from overhanging negatives. It is a light week for economic reports. Congress is still haggling over a debt limit increase.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Tuesday, June 7, 2011 9:13 am EDT

DJIA: 12,089.96
S&P 500: 1286.17
Nasdaq Comp.: 2702.50
Russell 2000: 795.53

Finding a level that discounts known and potential negatives involves a probing process – plunges in prices followed by rallies, followed by plunges, etc..

What’s deceptive is that every rebound looks like the end to the decline. Investors rush in, only to see another plunge result in more paper losses.

We had a similar softness in the economy last summer, which prompted the Fed to pursue QE2.

QE3 ?

Only if the outlook looks really bleak.

Memories are short, so few on the Street appreciate the fact we only experienced a Great Recession/Bear Market, not a Great Depression/ Bear Market.

Had the economy and markets taken a ten-count, investors and non-investors would feel pain unlike anything they ever imagined.

The market’s rebound in the last 26 months has been so swift and dynamic, I’m not sure everyone knows how close we came to a meltdown.

I empathize with those who are unemployed, under-employed, or trying to get their first job. But realistically, 90% of America IS employed.

The economy is chugging along in fits and starts, but not humming – not yet.

Most corporations are making money, some a ton of it. They just aren’t hiring one person more than absolutely necessary. What’s more, they aren’t spending one cent more than necessary.

At some point they will hire and spend in order to compete, and that’s when the economy will hum.

What’s my point ?

Too much focus is on the unemployment rate, and that can be misleading. It is a lagging indicator and its trend can change quickly. By the time it does, the stock market will have moved to higher levels as it discounts the investor benefits of a broader economic recovery.

WARNING ! Don’t let the spinsters (TV and print) scare you. This decline will lead to an opportunity.

I believe the BIG money* sold into the euphoria accompanying the stellar Q2 earnings reports. I believe it will be buying when a disheartened investor is selling in coming months.

George Brooks

*BIG money: Hate them don’t you ?

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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