As the Rally Slows Down, Investors Get Defensive

The two month rally we saw in the stock market since late March has now officially hit a ‘plateau’. As that happens, investors naturally and understandably move to more defensive stocks, avoiding ‘gutsy’ moves. Stocks ended considerably low yesterday, or at least lower than expected, at closing, 4:00pm eastern time. As stated in a previous article, it is normal and healthy for an incline to fluctuate, mostly as investors break out of the defensive shells they confine themselves in and get a feel for the new increases. The main problem with this is that investors hold they key to where the stock market goes from here and the next few days are crucial.

If investors are unnecessarily cautious, that rally can be short lived, keeping the economy in the hole it is in, which is what is beginning to occur. If investors begin to risk a little again and stock prices rise as demand rises, the economy as a whole takes notice and rises accordingly. If Wall Street can hit enough of a rally, creating more money and productivity, jobs are created. It is a natural process. The next few days are crucial because we are waiting for investors’ next moves. The time to invest in the stock market is tomorrow morning. Prices are still very low, but investors spending new money, especially on more risky moves, hoping to jump on a successful rally, creates a positive self-fulfilling prophecy. Investors all investing wisely, hoping to catch the rising tide will boost the tide much higher, lifting everything. As the quote says, “a rising tide lifts all boats,” supposedly coined by Sen Lemass, former Irish prime minister.

Investors moved to investing in staple items like pharmacutical Pfizer Inc. and food and drink manufacturers like Coca-Cola that still perform in a downturn, your expected safe moves, preparing for the rally to collapse. (Pfizer’s chart looked like a roller coaster yesterday, spiking just before noon, just after noon, and just before closing.) This could also be a self-fulfilling prophecy. If all investors invest safely, the economy turns to safe mode and closes low. We have officially gotten a taste of a good rally, with the Dow bouncing up over 8,000. The only hope is that investors got addicted to the rally and the economy performs.

The president of Stuart Frankel & Company, Jeffrey Frankel, commented, “You have people who missed this mammoth rally and now those people are taking the opportunity on any pullback to buy.” Here’s to hoping he is correct. If that is the case, this plateau will attract the last-minute rally investors and shoot back up. If he has it pegged, we are looking at a short-lived plateau.

Analysts say that the rally we just finished off was overdue, and that the 155 point dropped followed by a 50 point rise akes it difficult to tell if the rally will kick back up or not. Investors pulled technology stocks as the Nasdaq composite index dropped .09%. The Dow rose a minimal 50 points today. Economic and corporate reports show that the economy is stabilizing, but the market is slower than usual reflecting it as cautious investors fluctuate. Many companies whose stocks pummeled late last year are already turning to the markets for cash by selling out stock, indicating a restored confidence in the market.

Most banks are down for the second day in a row, but falling only pennies. General Motors, on the other hand, is to the lowest level since the Great Depression, mostly due to investors that are worried their stocks will lose even more value if more are issued as projected or if the company declares that ‘inevitable’ bankruptcy everyone talks so much about these days. By closing today, GM was trading as low as $1.09. Exxon Mobil rose 2.2% due to the safer investments being made these last two days. Bond prices lowered but leveled off as the Federal Reserve bought about $6 billion in government debt as an effort to artifically lower interest rates and reduce loan costs.