January’s Dismal U.S. Stock Market Trading May Signal Tough Times in 2009

In light of the dismal market performance, highlighted in the 8.6 percent shed by the S&P 500 during January, proponents of the January Barometer will have some tough choices to make regarding their 2009 investment strategy. (See paragraph 4 of article dated 26 January 2009) The S&P 500 advanced for the first three days of last week, but the 5 percent gain was wiped out by Friday in an end-of-week sell-off which analysts believe was triggered by new concerns being raised over unresolved issues, arguably the foremost being the increasingly fragile state of the financial industry, not only in the United States, but on a global scale.

Stock market traders are waiting in anxious anticipation for clarification on the proposed Obama-administration economic stimulus plan, particularly with regard to how soon this can be expected to go into action. The so-called ‘bad bank” plan, whereby a government structure is likely to be created to absorb bank’s toxic assets reminiscent of the measures taken during the 1980s savings and loan crisis, has been cited as a cause for the extremely volatility in the banking sector. Nonetheless, traders are hopeful that progress in this regard will provide some measure of relief to investors in the coming weeks. Analysts are acutely aware that two major problems facing U.S. stock markets are the solvency of the banking system and the spiraling real estate crisis which is linked to the rising unemployment rate, and all eyes will be on the authorities addressing these make-or-break issues. Thursday will see the release by the Labor Department of the January job loss figures, with preliminary indications being that they could be between 400,000 and 600,000. And while the market is becoming accustomed to the recurring theme of cash-strapped shoppers and plunging auto sales, January’s figures from retailers and the auto industry are expected to indicate that things are only getting worse.

However, despite the prevailing doom and gloom it has been noted that investors are still trading, even if somewhat more selectively than in the past, and some have even started to move money from defensive shelters into sectors that are generally considered to be more risky, but which will prove beneficial when the U.S. economy stabilizes.