The Stock Market - When is it time to invest again?
As we described seven weeks ago, many of you have reacted to our warnings and advice in the Weekly Commentary by moving some money out of the stock market. You now have the challenge of timing your entry back into the market.
Also, seven weeks ago we described five signals we have identified to give us an idea when to start moving money back into the market. Here is an update on what those 5 signals are telling us about investingThis is the sixth weekly report on them:
There has been NO improvement in any of the signals; and one of the signals has shown further deterioration. And, the real economy continues to suffer - the length and severity of this suffering is still unknown. Unemployment is a growing problem. The auto industry bailout (or lack thereof) throws another unknown into the stock market. The negatives still outweigh the positives and I recommend continuing a cautious position in your investment portfolio.
Several weeks ago we described the following signals we have identified to give us an idea when to start moving money back into the market.
1. The U.S. housing market – here we will track the Case-Shiller Index. Last week the most recent statistics were released and they continue to show a decline. Home prices in 20 major U.S. cities dropped 1.8% in September from the prior month, and they fell a record 17.4% on a year-over-year basis. Real estate experts have identified five factors that are creating downward pressure on housing prices: a deepening economic recession, rising unemployment, a huge amount of inventory overhang, widespread foreclosures, and scarce mortgage financing.
2. Foreign money buying up healthy small and regional banks. No activity noted this week.
3. LIBOR – London Interbank Offered Rate – this is the interest rate that bank offer to lend unsecured funds to other banks. Higher rates indicate stress in the banking system. No improvement noted this week.
4. The California economy – California, in many respects, has spear-headed the U.S. into this mess and will probably lead us out of it. And, California is a microcosm of the U.S. because it contains everything from agriculture to technology to tourism. No improvement noted this week.
5. A technical indicator – a reliable buy signal is when the 50 day moving average (of the S&P 500 Index) moves above the 200 day moving average. No improvement noted in the 50 day or 200 day moving average trend lines this week
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