Not so fast.
During a phone conversation yesterday, questions surfaced whether or not the huge increase in the market on Wednesday meant the stock market was once again going into “rally mode”. From my perspective, this is not necessarily going to be the case. The gentleman I was speaking to wondered why I am not more bullish about the market moving forward. I just thought that I’d share my response with the rest of you by providing some historical data.
It’s important to let you know that history doesn’t always repeat itself. Just because something occurred at some point in the past doesn’t mean it will necessarily occur again. It’s also important to point out that my opinion about the future direction of the markets may be wrong. However, based on a review of the historical evidence, I strongly believe individual investors should remain cautious at the very least.
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First, this from CNN Money on September 1, 2010 (emphasis added):
The nation’s top automakers reported disappointing sales Wednesday, resulting in the worst August for industry wide auto sales in 27 years.
According to sales tracker Autodata, U.S. new vehicle sales fell just short of 1 million vehicles, a drop of 21% from a year ago, which included Cash for Clunkers. That federal program created a sugar rush of sales by dangling an incentive of up to $4,500 in cash for buyers who traded in older gas guzzlers for more efficient models.
Industry sales also fell 5% from July levels. August sales typically outpace July, as deals become available on older models ahead of the fall introduction of new model year cars. August sales would equate to an annual sales pace of about 11.5 million vehicles.
“Car buying is far from repaired, and consumers hesitate before they make a big ticket purchase,” said Jesse Toprak, an analyst with the auto pricing Web site Truecar.com. “It shows that the recovery is going to be much slower and more painful than expected.”
This year was the weakest August sales total since the 993,100 sold in 1983. Analysts had been forecasting a weak month, with expected sales of about 1.03 million. Most of the major automakers fell short of estimates. The soft demand for autos is seen by economists as another sign of growing weakness among nervous consumers.
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For over a year now, I’ve been making the case that the US economy is in for a ‘double dip recession’ with the second dip likely worse than the first. While the jury is still completely out, more evidence surfaced this week supporting my position. This from Bloomberg on August 24, 2010 (highlighting added):
Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery. Read more »
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