It looks like the Bears are telling the Stock Market who is in control. Since the Middle of July the Dow Jones have sold off more than one thousand points. Are we in a replay of what happened back in 2008 – 2009?
The last eight-day decline in stocks, which came in October 2008, just a few weeks after Lehman Brothers collapsed, was equally brutal. Stocks did bounce back, but then slid again — for another five months before hitting the bottom in early March 2009.
For investors, it’s important to remember that the stock market is a leading indicator, which means the last two weeks of pain was not so much tied to the U.S. debt talks as to discounting of some future economic calamity, likely a recession.
But just as in early 2009, the market will start rebounding long before it becomes clear that the economy is recovering. For investors hoping to capture those gains, the weakness of the last few weeks provides lots of opportunities in beaten-down sectors.
The worst-performing sectors in the last three months includes airlines, autos, real estate services, and financial stocks among the worst performers. You can take advantage of looking for put opportunities in these sectors.
This time the market is worried about the government debt and also 3.71 million Americans will be losing their unemployment benefits over the next few months. Does this mean that we are going to enter into another rescission?