Current Stock Market
The current stock market is a scary place to be, especially for new investors. Ever since the news of the financial crisis in the United States slipped out, trading in the stock market has become an extremely choppy affair. As I write this sentence, the Dow Jones Industrial Average has just dropped 600 points in one day as nervous investors head for the exits. In the current stock market, investors realize that they don't exist in a vacuum, and if worldwide business is slowing down, so will the returns on stock market investments.
The credit crunch has finally caught up with businesses all over the world. Companies rely on debt to build new factories and buy more inventory. They require on debt to hire staff and advertise. Now, they're finding they can't get the credit they want when they need it. This is causing many business managers to dig deep to stay afloat.
Of course when all of this negative news is broadcast to the public, it makes people nervous. Nervous people are rarely eager consumers, so it causes a further downward pressure on business as their demand for new products and services dries up. At the center of all of this current crisis is the fact that people have seen their home values slashed, and have found it nearly impossible to reconsolidate their debt. For consumers on the edge, it's proving too much to handle.
For stock market investors, many don't see the point in hanging on to see if government officials can turn around business conditions. According to Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., the deleveraging of businesses will take years. This is not a time frame most investors are comfortable with.
"This is a global deleveraging of many economies," he said. "It might appear that you're going into the abyss where the economy grinds to a halt and the financial system goes into complete disarray. But, what the market is really reading here is that this is a global phenomenon, and when you delever like this, it is a process that takes a very long period of time measured in years, not quarters."
Of course not all investors are so bearish, but Wall Street tends to follow a herd mentality. With so many big companies hurting and government officials speaking in such dire terms, it's not that remarkable that pessimism is ruling the day. And until people get upbeat about the economy, most won't want to purchase. And therein lies the rub. Without consumer confidence, the whole free market way of life goes to hell in a hand basket. And right now, negativity is the rule of the day.
Some savvy investors will see great opportunities for stock market returns in the current stock market. If they're students of the historical stock market, they know that the whole system operates on checks and balances and constantly operates in cycles. If this is a bust, it surely must be followed by a boom. The question they'll ask themselves is, where can I find opportunities for a rebound? If they're willing to wait for several years for returns, they can find excellent returns right where everything looks the most hopeless.
But for the rest of investors, this much pain will be enough to keep them away from the action. The current stock market is a very scary place indeed.