Are The Stock Markets Likely To Fall Below Their Recent Lows?
James Woolley
April 27, 2009
We are all aware of just how much the stock markets have fallen in recent years but they are all trading well above their lows and there are a few signs emerging that the worst of the recession may be behind us. So have we already reached the bottom?
Well the thing about stock market investing is that it's pretty much impossible to call the bottom of a market. Investors look forward at least six months but it can also be several years or more, so therefore the markets will generally rise in anticipation of an improvement in conditions rather than wait until they do actually improve.
This means that you need to do thorough research in order to determine if the markets are set to rise. My own view is that certain aspects of the economy will continue to worsen for at least another year or so, such as the rise in unemployment and the continuation of several big-name companies running into financial difficulties, but I think there will also be some positive improvements elsewhere in the economy.
For instance the banks have rallied strongly in recent weeks, and I think they are now unlikely to go back to their lows because it has been suggested that many of them are now in a fairly solid position, and certainly in a much healthier position than they were at the start of this banking crisis.
Furthermore there are signs starting to emerge that consumer confidence is on the rise and the housing market is starting to pick up again, albeit slowly. Plus recent earnings reports haven't actually been as bad as many analysts had feared.
The stock markets currently reflect this news because all of the major indices are trading well above their lows. For instance the Dow Jones is currently trading at 8076 at the time of writing (versus a low of 6470) whilst the S&P 500 is currently trading at 866 (versus a low of 666) and the FTSE 100 is trading at 4156 (versus a low of 3460).
So in many ways the current prices reflect the fact that the economy should start to pick up again in the next year or so. Of course the prices may well return to their lows but I don't personally think this will happen.
Nevertheless if you want to try and profit from a possible recovery then your best bet would probably be to buy index funds at various stages, ideally after a few days of consecutive falls. For instance I personally have been buying into a FTSE 100 index fund at various levels between 3600 and 3900 and have done fairly well up to now.
Plus even if the FTSE 100 dives below it's recent lows, I will still be buying more because in the long-term I firmly believe this index will be trading well above 4000 and probably nearer 5000 in due course.
So to answer the original question, I personally believe the bottoms are already in, but I guess only time will tell.
Click here to catch up on the latest financial trading news and to read a full review of TradeKing.
Well the thing about stock market investing is that it's pretty much impossible to call the bottom of a market. Investors look forward at least six months but it can also be several years or more, so therefore the markets will generally rise in anticipation of an improvement in conditions rather than wait until they do actually improve.
This means that you need to do thorough research in order to determine if the markets are set to rise. My own view is that certain aspects of the economy will continue to worsen for at least another year or so, such as the rise in unemployment and the continuation of several big-name companies running into financial difficulties, but I think there will also be some positive improvements elsewhere in the economy.
For instance the banks have rallied strongly in recent weeks, and I think they are now unlikely to go back to their lows because it has been suggested that many of them are now in a fairly solid position, and certainly in a much healthier position than they were at the start of this banking crisis.
Furthermore there are signs starting to emerge that consumer confidence is on the rise and the housing market is starting to pick up again, albeit slowly. Plus recent earnings reports haven't actually been as bad as many analysts had feared.
The stock markets currently reflect this news because all of the major indices are trading well above their lows. For instance the Dow Jones is currently trading at 8076 at the time of writing (versus a low of 6470) whilst the S&P 500 is currently trading at 866 (versus a low of 666) and the FTSE 100 is trading at 4156 (versus a low of 3460).
So in many ways the current prices reflect the fact that the economy should start to pick up again in the next year or so. Of course the prices may well return to their lows but I don't personally think this will happen.
Nevertheless if you want to try and profit from a possible recovery then your best bet would probably be to buy index funds at various stages, ideally after a few days of consecutive falls. For instance I personally have been buying into a FTSE 100 index fund at various levels between 3600 and 3900 and have done fairly well up to now.
Plus even if the FTSE 100 dives below it's recent lows, I will still be buying more because in the long-term I firmly believe this index will be trading well above 4000 and probably nearer 5000 in due course.
So to answer the original question, I personally believe the bottoms are already in, but I guess only time will tell.
Click here to catch up on the latest financial trading news and to read a full review of TradeKing.
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