I saw a number of posts regarding the performance of the stock market over the last week, all of which were trying to explain the performance this week of the equity markets.
I'm not sure that anyone can every really explain the performance of the stock market because there are so many issues that are reflected in its moves. "It" has to deal with the complicated human emotions that are difficult to understand, let alone track and analyze. It's just part of the market. It trades based on emotions such as excitement, fear, anticipation, and even greed.
However, I think a big part of this week's performance was due to the fact that consumers are beginning to realize that we have been facing, and continue to face, some difficult challenges, especially in the real estate, mortgage and credit markets, but that they are not the end all doomsday that many had predicted. They are not bringing companies down. Those companies with serious problems are being quickly dealt with, and they are not failing for the most part, they are being acquired and absorbed quickly into other operations.
Wall Street, Banks and Credit Companies are addressing the issues head on. They have written assets down in value and the financial numbers have been large. However, I think that it shows we as a country are addressing the issues upfront and not hiding them like we have in past economic, banking or financial related meltdowns.
Keep in mind that most of these write downs are "reserves" for potential losses. There may be some recoveries in the future if all of these losses are not realized. Companies are "taking advantage" of the opportunity to blame the markets so that they can take significant write downs. The blame does not land on their shoulders because "it is the market's fault." The fact that we are taking the hits early and upfront means that this entire cycle will be complete before we know it, and the companies will come out much healthier with much stronger balance sheets.
There are already many signs that buyers are coming back into the market, sellers are coming back to reality, and investment continues. Sohisticated investors understand these issues and are buying as others panic.
Just my two cents.
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