Why the Stock Market is Falling

Here is an overview of some of the dynamics driving the sideways to down stock market this year:

1. Job creation remains anemic in the United States.  Without new jobs there cannot be incremental spending in our consumer driven economy.  Without incremental spending there is no sales growth and therefore no profit growth.  So this is downward pressure on the markets – duh!
2. U.S. businesses continue to sit on huge piles of cash – by some counts up to $3 trillion.  This is an indication of a lack of uses for that cash that exceed the low interest rates being earned on those cash balances.  They are not: investing in new growth projects, acquiring other companies, hiring new employees, or paying dividends.  This bodes ill for the long-term health of the economy.  So this is downward pressure on the markets.
3. The Middle Eastern “revolutions” seem to have resulted in little real change – just new strongmen in place of the old strongmen – or worse, the same strongmen in place but more entrenched.  However, one real artifact of the tension is increased speculation in the oil markets.  That, in turn, has resulted in higher gas and fuel prices for the entire economy.  That, in turn, has damped consumer incomes and therefore, damped consumer spending on anything but gas.  So this is downward pressure on the markets.
4. The Japanese earthquake and resultant tsunami gripped the first world’s attention for almost a month and reminded people why they generally don’t like nuclear power.  This led to increased paranoia and a sense that the world was not a safe place.  In an environment in which most consumers were already shell shocked from the Great Recession, this was another reason to stay home and not spend money.  Less spending equals less corporate revenues and profits.  So this was downward pressure on the markets.
5. The retarded and ongoing European debt crisis has highlighted for the world the shakiness of the world financial system even three years post-The Great Recession.  Additionally, it has demonstrated that a united Europe is actually a sham.  All countries have their own unique interests and this crisis has highlighted that the EU is great as long as the economy is going great.  But if it is going bad then it’s “every country for themselves.”  Both of these factors led to downward pressure on markets.
6. The even more retarded U.S. debt situation gripped the nation and increased paranoia and the idea that the U.S. government is really not “of the people” and “for the people” anymore.  Additionally, the U.S. government, focused on budgetary issues is not focused on righting the U.S. economic ship.  Of course, this is a downward force on the markets.

All of these factors have led to shell shocked consumers – a bad thing in a consumer driven economy, don’t you think?

All of these above forces have also led to a situation where investors have barely focused on what they normally focus on: U.S. corporate profitability.  The good news is that U.S. corporations have had a good six months in 2011.  If attention could begin to focus on this, rather than the ineptitude, of two of the world’s major governmental systems, then there should be an upward pressure on the stock markets in the second half of the year.  I am sticking to my belief that the stock market will be up around 8-10% total for 2011.

Jason