I wanted to take a few minutes and look at what's happened in the markets yesterday and so far this morning. As I've written, investors should have taken short term profits and started moving money out of the stocks and back into cash because I believed the market was due for some sort of a downward move...well, it began yesterday and is following through this morning (as I write, the market is down by almost 2%). The selloff is being led by the financials, which as I also mentioned, looked like they were due for a pullback following the recent performance seen in the sector.
So, why was the market down yesterday and down big again today? Here's a list:
- Simple profit taking. When the markets move up consecutively, it is expected that there will be a couple of big down days where anyone who's made some trades and made money, will look to sell and pocket their "winnings". This is one of the reasons I suggested taking any short term profits recently.
- This morning, the U.S. jobs number was released, and net-net there were basically zero jobs created over the past month (of course there were some, but not enough to "move the needle" with respect to unemployment rate)...this is the first time that there has been zero job growth since WWII. So as one can see, we still have a serious problem with unemployment in this country.
- Eurozone manufacturing (countries in Europe - Germany, France, Spain, etc) declined month over month for the first time in 2 years.
- The government announced this morning that it is filling suit against 5 of the largest U.S. banks over mortgage fraud and other related issus. This is definately not what the government needs to be doing at this time, policy makers and those in power need to be focusing on moving forward and creating jobs and growing the economy and building confidence as opposed to looking in the rear view mirror and suing the very companies/institutions we need to help stimulate economic growth (this is why the bank stocks are down so much today).
So what now, in leu of the bad jobs numbers and the government filling suit and manufacturing growth in Europe down? Nothing...don't look to bank stocks that look "cheap", there is a great deal of uncertainty right now revolving around economic growth forecasts and these lawsuits that I would not be initiating any new stock buys. I would however continue to hold on to the longer term financial stocks (or buyout stocks - Etrade and SunTrust) that you may own, and look to add to those holdings only if they come down another 2-4% from their current levels (so I wouldn't buy any more Etrade unless it dropped down to around $11/share from where it's currently trading at $11.57). I also wouldn't be buying any gold or commodities at this time because the "gold trade" is starting to look a bit overcrowded (too many cows eating in the same part of the pasture).
I don't really expect a whole lot of action over the next 3 1/2 hours that the market is open, as most people are already starting to pack their beach bags for the long holiday weekend (the stock market is closed on Monday for Labor Day).
