Do you believe this is just the beginning?

NEW YORK (Jan. 22) - Wall Street struggled to steady itself Tuesday, climbing back from an early plunge after the Federal Reserve cut interest rates to restore stability to a faltering U.S. economy. The Dow Jones industrials, down 465 points at the start of the session, recovered to a loss of about 200 points

The U.S. markets joined a global selloff amid growing fears that a U.S. recession could send economies around the world into a downturn. Though stocks regained ground as investors digested the Fed's move to cut the key interest rate by 0.75 percentage point and bargain-hunters entered the market, trading remained volatile and the major indexes fluctuated sharply, at times approaching the break-even point before heading down again.

Today was a great show of strength for the markets, recovering nearly 3% from the weak open, only posting 1% losses, much less than that of other markets yesterday. The capitulation that we saw at the open obviously drew some buyers into the market, namely retail and financials. Basically, it is likely that our markets will continue lower over the next few months. The government needs to act with a stimulus that is larger than the current $150 billion planned. Another downside pressure depends on the Federal Reserve's actions. Many investors and economists are calling for another 25 basis point cut, which, if it fails to materialize, will place downward pressure on the markets. We are facing significant headwinds, and until some signs of improvement appear, it is likely that the markets will continue to drift lower. There is a lack of buying and significant selling taking place, and until there is some clarity as to the direction of our economy over the next six to nine months there will be little reason for this trend to continue, as risk is greatly elevated compared to normal market conditions. It is necessary to clarify that there are going to be pockets of potential investments, as there are some industries that have been discounting these economic problems for the past six months, and thus are trading at significant discounts to historical valuations. Basically, our markets are getting closer to the bottom than the top, and we may have hit a short-term bottom due to this morning's capitulation. However, it is likely that the market will trend lower over the next few months, but not to the extent that they have been. I believe we are approaching a point where long-term investors should consider slowly getting into select sectors, such as financials, industrial, and consumer discretionary. Some companies in these sectors have been hit with huge declines over the past few months, which leads me to believe that much, if not all of the bad news has been priced into them, and there is little downside potential remaining. I would look for companies in these sectors that are trading below market-average valuations, which possess strong balance sheets, buyback programs and dividends. Of course, dollar-cost averaging will be an invaluable tool when entering markets like the ones we currently have. Aside from these select companies in select industries, avoiding equities until there is more clarity as to the direction of our economy would be prudent, as for the most part, the risk/reward profiles are unattractive. Just my thoughts, I hope they helped!

Best of luck!

Brendan Prewitt
President, New York Capital Investment Group LLC

I just wanted to clarify some other posters answers, as I found them to be fundamentally flawed.

In regards to Shaun R's post:

The reasoning that you can make more on the downside than the upside is fundamentally wrong. The upside potential for stocks is unlimited, the downside ends at $0. The most money you can lose through investing in any stock is the amount of capital you invested.

In regards to Michael M's post:

Comparing the 2001-2003 recession to today's is a very weak argument. Valuations in 2001 to 2003 were well over two times higher than they are now. On top of that, balance sheets are much stronger now than they were in 2003, with assets outpacing liabilities by $1.4 trillion. There is no reason to believe the US market is overinflated, with the S&P 500 trading at 12 times forward earnings. Overlaying a chart without evaluating the fundamentals is insignificant. The causes of the bust in the last bear market are very different than today's conditions, thus the chart comparison is a weak way to evaluate the direction of the markets.

This is just the beginning of this recession.

recessions are normal

If there is a recession, its basically normal. Valuations this time were less extreme than they were back in the internet bubble. Get rid of the fear and things should pick up.

Anyway, stock market will price in a recession in the early part of it.

Yes. I believe that the fed rate cut will sustain the economy until July then everything will crumble.
The outstanding credit card debit will fold in a substantial fashion. That will ripple to all sectors and solidify a recession and a possible depression.
FYI... there is almost $1,000,000,000,000 in credit card debit.

almost my personal belief is that if the market break the floor of 11,500, it will drop into the high 9000's.

It's scary out there. Invest carefully, not that you shouldn't do that always but especially now.

I believe the markets will go down for a while. The good thing is There is tons of money to be made shorting stocks.

You can make more when stocks go down then when they go up.

This website will give you some great pointers on how to do that.

Yes but the markets will recover, we just have to roll with the punches for now.

Keep a close eye on it, the prices are getting pretty close to bottoms and that's when you'll see alot of buying. Bargain hunters are in the wings waiting so don't be fooled into all the doom and gloom.

Look at the chart of the 2001-2003 recession. Visually "overlay" this on today's market (remembering October 2007 as the peak).

http://www.financialsense.com/editorials/griess/2004/0727.html

Now tell us whether you think this is just the beginning.

Remember, people, history already has the answers.

no one really knows, because they don't tell you everything, they only tell you what they want you to know,

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