Well, all the boards are red again.
A couple of weeks ago it was blamed on China. Now they're saying it's subprime mortgage lenders.
Analysts are good a coming up with explanations for what has happened in the past....
Anyone have any thoughts as to how things are going to pan out in the next couple of months?
Well, whats typical for a correction is that just before its ecountered, everyone has turned bullish and has gotten a little ahead of himselve. IMO that is what happened over the last months. The rally that sparked in august last year has turned out to be a real bull run, but economic data has been neglected during the last month(s), due to the overwhelming bullishness.
The situation today isn't that promising, but neither is it too bad.
The Dow has suffered from a 'healthy' correction, but what is to come is more important. First of all, the correction hasn't really been ignited by US data that isn't living up to its promises, but was a snowball effect that started with the appreciation of the Yen through the unwinding of the carry trade.
After the correction, people have started opening their eyes to the economic news that has been lingering and telling a story for months. One with slumping housing and inflation. As history has proved correct, it will propably once again be up to the Fed.
If another interest hike would hit the market, the Dow will go down further. A reason why the Fed would do such a thing is because inflation keeps posing threats to economic stability. Reasons why the Fed should not do such a thing are to be found in the already economic weakening situation. Another rate hike would further dampen economic sentiment.
Lowering the interest rate, would be another option, which would provide much relief to the markets, as the rope around the economy would be loosened. Although it probably won't be the continuation of the agressive stock rally, it would provide a better and sustainable base for mild growth.
But then again, lowering interest rates would be detrimental to an already terminal ill dollar, which poses some risks in the light of the global economy (eg, new snowball effects of selling dollars which could effect stock markets quite badly, globally.)