No one is particularly happy with the idea of a massive bailout (the largest intervention by the federal government in the markets).
However, no one close to the markets denies the need is there and until something positive happens, the stock market is going to be a very difficult place.
Will the proposed and amended bailout plan work? Again, no one absolutely knows for sure.
Individual Investors
Where does this leave individual investors?One of the most troubling environments for markets to handle is uncertainty.
Since the market always looks forward and stock prices are derived from expected earnings, uncertainty about the economy or the stability of the financial markets destroys projections.
When investors can’t reliably predict a company’s future earnings because the market is in chaos, the smart thing to do is nothing.
A normal strategy in a down market is to look for good companies trading at a discount.
Uncertainty in the Market
However, when you are uncertain there will be any future earnings because the economy is falling off a cliff, picking a winning stock becomes much more risky.Investors need to know that there will be a functioning economy in the future and that markets will react in reasonably predictable ways.
Until that confidence is restored, many investors will sit on cash or cash out of stocks when they can.
It is not the responsibility of the Federal Reserve Board, the Securities and Exchange Commission, the Treasury Department or even Congress and the President to make investors whole.
It is their job to ensure the economy is on sound footing and that there is sufficient regulatory oversight of the markets to keep everyone honest.
Here’s hoping the bailout restores some confidence to the economy and to the markets. Until that confidence returns, investing the stock market will remain very uncertain.
