Ten Reasons To Panic About The Market

The sell-off, which has driven most stock markets around the world down by 10% in the last week, is likely to get worse. It is a sign that many believe a new recession has begun. This trouble can be coupled with a credit disaster in Europe and deficit trouble, which did not end with new budget plans set by Washington, in America.

Panic has set in as the markets have sold off. There are reasons that the panic may get worse:

1. Market Collapse – Markets collapsed as the last recession reached a bottom. The DJIA, which traded at 14,000 in 2007 dropped below 7,000 in the spring of 2009. If the recent past is any indication, equities have much further to fall.

2. Profits Disappear – Corporate profits are likely to disintegrate. Cost cuts are near their limits. These cuts have helped company earnings recover over the last two years. The leveraged corporations have to keep margins if sales continue to drop.

3. Unemployment – Unemployment is still much too high to help consumer spending. U.S. joblessness is still well over 9%. Over 14 million people are out of work, and about 6 million of those have not found jobs in over half a year.

4. Housing – The housing collapse continues. Recent data on real estate trends show that home prices are still dropping in most markets. The effects of foreclosures are likely to surge as inventory in limbo because of the robo-signing scandal comes onto the market. Expert Robert Shiller says prices could fall another 10% to 25% in the next two years.

5. Stimulus – The federal government’s stimulus program has run its course. The $787 billion package, put into place the month after Obama took office, has been spent.

6. Sovereign Debt – The debt crisis among economically weak EU nations could worsen. This would cause large charges to international banks, which already have posted poor earning recently. Financial firms worldwide have already begun to cut staff and that trend will likely grow with losses.

7. European Growth – The problems of slow economic growth in Europe are rising. Unemployment in Spain is over 20%. In Greece that number is over 15%. Austerity programs will sap money that comes from government spending into economies of many EU nations.

8. Austerity – Austerity at the federal, state, and local levels in the U.S. will cause public sector layoffs, which will make unemployment worse.

9. Tax Cuts – The extension of the Bush tax cuts has not helped consumer or business spending. These cuts were supposed to aid the economic recovery in 2011.

10. Consumer Confidence – Bad news from around the world and within the U.S. has damaged any consumer confidence, which recovered in early 2011 as some signs of an economic revival began. American consumers have begun to go back into their shell. Any losses they sustain in the stock market will make that trend even worse.

Douglas A. McIntyre