Actions by world governments are steering investment dollars away from the stock markets. In addition to the economic downturn, investors have a variety of other reasons they're not willing to rush into the market just yet.
What Will Happen Tomorrow?
No one knows what tomorrow will bring in the market. There could be a huge government takeover of a private firm or a federally-assisted merger. In a market this unpredictable, very few people find comfort in playing the stock market dartboard game. Naturally, in a market like the current one, investors are weary to hold positions overnight, let alone weekends. Hoping for a multi-week rally may be difficult for investors to stomach.
Too Many People Making Too Many Decisions
Market makers are usually the people who sew together a bid and an ask order to complete a stock trade. Today, however, there is a new definition of market maker, and this includes Tim Geithner, Barack Obama and Ben Bernanke. Those three names cause more up and down movements on the stock market than any earnings report or economic forecast. Investors have memories of government interventions going terribly wrong, and too many people making too many decisions is scaring investors away from making any long term investments.
Unemployment Digs into Retirement Funds
What do salary pensions, 401ks, 403bs, and IRAs all have in common? They're shrinking – quickly. The baby boomer population that squirreled away millions during the asset bubble boom is now drawing from their accounts to sustain their standard of living. Millions more of Americans afraid of unemployment aren't saving for retirement as much as they're saving for tomorrow. Though some investors are revamping their retirement portfolios, many more are sitting on the sidelines, too scared of what tomorrow will bring to trust their savings to the Wall Street Casino. A distrustful investor is no investor at all, but rather a saver.
Wall Street is Chaotic
Famed CEOs and investment managers look guiltier than baseball players in front of Congress. Wall Street's best crooks are having a hard time playing the fraud game when willing parties are no longer interested in investing. Were the United States to escape the credit crisis, frauds like Bernie Madoff and hundreds of CEOs with outrageous salaries would never have been ousted. Now that the public is aware of these frauds, they're unwilling to assist in any way.
Investors Remember Bubbled Markets
Real estate, crude oil and commodities haven't been forgotten just yet. Just eight years after the end of the last bubble, investors are taking notice of what's been hurting their portfolios for so long. Chasing returns around in an endless circle seems to be the name of the game, and investors aren't playing it. No one knows if real estate has even bottomed just yet, or if artificially low interest rates will bring about a whole new bubble.
Earnings Haven't Reversed Trend
Though economic indicators began pointing to north at the turn of the year, very few companies are seeing improved profits over last year. While this is normal, it should be expected that stock prices will lag for as long as missed expectations and losses are recorded. Investors must also consider that many underfunded companies are still trading alongside healthy companies. Government bailouts are mostly to blame for this phenomenon; think AIG, Ford, GM, Chrysler, and even GE.
Dividends Aren't Enticing
At present, the best dividend yields are attributed to the worst stocks. Many financial companies are paying a 5% plus yield to investors, even though many of these dividend payments won't transpire into reality. In a regular market, high dividends are usually the market of solid firms like Altria or cash rich companies like Microsoft. Yet ironically, in today's market, it's the falling stars that pay the best.
Everyone Has Already Darted To Safety
There are three safe havens: cash, treasuries and gold. All of these are near worthless as investment vehicles. Both cash and treasuries pay horribly, and you'll never beat inflation with today's yields. Gold, on the other hand, has been history's anti-inflation instrument, but it's now well over $900 an ounce and some are calling it a bubble. Even the safe havens are saturated!
When Will The Tide Turn?
The FED sees a growing economy by 2010, keen professors say five years, and some doom and gloomers say 15 years. At any rate, there is now more cash parked out of the markets than ever before. Should the cash and confidence return to the markets, the next few years should be full of bull market runs. The tide on Wall Street will turn as soon as the wave of confidence returns.