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The Stock Market Is Likely Taking Summer Break

The Stock Market Is Likely Taking Summer Break

S&P-500 Index Drop from May 2 to June 8, 2011

Major stock market indexes slowly went down during the last several weeks, from May 2 to June 8, 2011. Since this decline has already broken a few important technical chart levels, many technical analysts believe that the trend might continue with sideways moves for a few weeks ahead.

Except seasonal reason, this May stock market decline was also caused by fundamental factors. The US corporate profits in the first quarter dropped for the first time in more than two years. The US unemployment rate in May increased from 9.0% to 9.1%. It looks likely that investors overreacted to strong corporate earnings at the beginning of this year. Economists believe that the government stimulus money could have artificially inflated the market. Evidently, without additional money injection the US economy would undergo a transition to a self-sustaining recovery.

From the fundamental point of view it is not clear how precisely the ending of stimulus is reflected in the current market evaluation. So that when the bond-buying program ends at the end of June, the US stock market might reach a more accurate equilibrium. Other surprises might be brought by the second quarter reporting season.

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June 9, 2011 Posted by | Stock Market Forecast | , , , , , , , | Leave a comment