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The Bear Market. Depressed banking stocks dragging indexes lower.

Posted by Adrian on July 8, 2008

You can look at two angles on declining global stock indexes, one that it is oversold and a rebound could be soon. Especially the US Dow and S&P 500, which has lost a lot of value. Or, you look at the weight that is dragging the index lower is almost exclusively from the banking sector – which means that it could be a harsh bear (and prolonged) market for stocks and with no rebound in sight at all; as credit conditions become worst, contraction in the market and de-leveraging continues on.

Depressed banking stocks are causing a ripple effect of panic in the markets. In the coming weeks of July 2008, the earning’s data from US banks is going to be very poor, not to forget that European Banks such as Credit Suisse and UBS will continue to have problems with capital raising and profit downgrades.

So there will be no let up from the negative effects on indexes, attributed by a falling banking sector. Please refer to graph:

(please note the 1yr graph above is running real time daily statistics)

Note 10th 11th and 12th of March 2008, when Bear Stearns was propped up by the Federal Reserve and the takeover by JP Morgan Chase took place. The dow, nasdaq and S&P500 all dropped rapidly prior to the Fed’s bailout. Remember the close to -20% (Bear Market) drop near March 10th, was from just one ailing investment bank! Although Bear Stearns was close to bankruptcy, others were not too far away either. Only after the Fed opened it’s discount lending window to all banks – some market relief occurred.

The Bear market that the US is now in (which I might add Bear markets are now popping up elsewhere, including Australia, Asian and European markets), is indicating signs of a real decline in market confidence that the banks will escape their very problematic condition. Which is basically the ability to survive.

The hope is that oil will decline from it’s recent highs of 144+ (now 142) which will bring some relief to the stock market. I think this is a false hope and risky one. At The recent G8 conference, delegates spoke of hording oil and stock piling. The problem with the current global slowdown, that in all retrospect should drop the high costs oil. Is that we may see a lot of buying of oil from countries that will stock pile, such a China and India. A lower oil price say 110, is feasible, but only short term. As any lower oil price will start a frenzy of buying.

There is still a lot volatility with the oil market, including tensions between Iran and the West/Israel. So market buying is still on.

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2 Responses to “The Bear Market. Depressed banking stocks dragging indexes lower.”

  1. […] that and ailing banking industry is afraid to reinvest bank into an recessionary economy. (refer to The Bear Market. Depressed banking stocks dragging indexes lower.) So businesses that were and are still highly leveraged are also going to contract, as they will […]

  2. […] in World Crisis scenarios for the 21st century – Worldwide economic depression (update 15) and The Bear Market. Depressed banking stocks dragging indexes lower, the global banking stocks have crashed and will continue to become depressed. This invertibly has […]

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