Over the years, September has been known to be one of the worst performing months for the broader North American stock markets. This September has been no exception. The market this month got off to one of the worst starts in history, falling substantially over the first few days. There has been a rebound since, however the volatility has been extreme. Is it possible for anyone to come up with solutions to the economic uncertainty plaguing the stock market?
Last week, U.S. President Barack Obama put forth his jobs bill in a prime time telecast to the nation, a bill he believes will get people back to work by concentrating on infrastructure and reducing taxes for the middle class and the small business owner. According to CNBC, 53 per cent of the president’s proposal revolved around reducing taxes and 43 per cent on increased spending. Many analysts have commented that the president structured the proposal this way to get bi-partisan support. The initial response from Republicans has been tempered — they have said there is a lot in the president’s proposal they can agree on, but there are still many other things they can’t. Thus, in my opinion, there is a good chance that Obama’s new jobs bill may not pass in its entirety and the battle between Democrats and Republicans will rage on with the U.S. economy being held hostage.
The head of the U.S Federal Reserve, Ben Bernanke, also addressed investors this week. It now has become widely expected that he will also come out with some sort of stimulus in the near future to try to get unemployment figures down. However, in his speech Thursday, he gave no further indication as to what the Fed might do. The stock market was expecting something more from the Chairman of the Federal Reserve and when no new details were released, the stock markets in North America sold off.
The European Central Bank (ECB) has finally admitted to a slowing economy in Europe. They have stopped raising interest rates and many feel they may even begin to reduce rates in the coming months if the economic environment does not improve. The steps that the European Union as a whole have taken as of late to try and stem the tide of falling stock market prices have not worked. Traders and investors continue to believe the worst is yet to come, even though the ECB does not believe so.
The one positive I take from all the talk over the past week is that the economic situation is not as dire as the market may be portraying at this time. In my opinion, if the Fed felt that the economy was on its way into a recession, they would have acted with force some time ago. As of now, they are still not sure what they will do as far as stimulus is concerned. Judging by its movement over the past few months, however, the market pricing in a recession. If the market is correct, then the sell off will be justified. If the market is incorrect, I believe, there will be a fairly large bounce back to the levels seen earlier in this year.
At this time I believe that investors are experiencing a crisis of confidence more than anything else. To feel more positive, investors will have to see better leadership out of the U.S. and the European Union. In my opinion, the government and central banks are the ones that can encourage this confidence to get individuals believing again in the economy. When they succeed in doing this, I believe there is no telling how fast the markets will rise.
If you have any questions regarding the above article or are looking for an investment advisor to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company. This is not an official publication of DWM Securities Inc. The views expressed are those of the author alone and are not necessarily those of DWM Securities Inc.
