We have been cautioning for weeks that the bull is not quite back yet? Bank America finally woke everyone up. Their numbers were good for the last quarter but credit is deteriorating in all sectors. The next few quarters will remain quite bumpy. The negative comments by its CEO and the notion that the government will convert TARP loans into common equity helped to trash the whole banking sector yesterday. The result was plummeting financial stocks and the overall market declining more than 4%.
Remember, it is earnings season and the 1st quarter may have shown some bright spots but we are in for some tough economic times ahead. Investors have become more bullish over the past six weeks as stocks have soared but we have cautioned that companies will not meet future expectations. Dupont, Caterpillar, Merck, IBM, and Bank of NY Mellon all have reduced expectations for the year.
Our readers are not surprised by the dismal corporate news but investors seem shocked and dismayed. This week we have a ton of earnings reports and the news is likely to stay negative. It will be interesting to see if the market remains resilient. We believe the bear rally is now officially over and investors will try to properly discount where stocks should be. Perhaps we will retest the lows of March 6th but if not, stocks should remain weak until more positive tea leaves indicate there is economic light at the end of the tunnel. 2009 can be written off for any growth so we need to see if there is any visibility into the first quarter of 2010.
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