Grab a parachute?

Investors sold off shares of American business like crazy on Thursday and Friday. The stock markets fell ~5% depending on which index is your favorite to look at. Should we be grabbing parachutes to brace for a bigger fall? I don’t think so and here’s why…

The news that triggered the sell off was higher than expected unemployment numbers that pushed the unemployment rate up to 9.5%. This is a reason to sell shares. However, most of the information that I have read for the last several months has said that economists expect unemployment to rise above 10% even after GDP turns positive. Even the Federal Reserve, which is famously careful in its estimates, had a similar projection for unemployment. What that tells me is that there was about 5% worth of upward returns in the market that was from speculative investors – those that bail at the first sign of their investment thesis being violated.

The coming week will be telling because earnings reports from businesses are about to join the news flow along side general economic reports. How investors respond to, what I feel will be, a positive earnings season will be very telling.

I hope that everyone had a wonderful Independence Day!

Jason