The mood on Wall Street and in Washington went from a very negative outlook to a relatively positive one in a matter of months. Whether they are trying to stay upbeat or believe that the economy has made a turn, the dangers of being positive might outweigh the benefits.
When President Obama took office nearly every speech he or one of his appointees (Treasury Secretary) made was followed by a negative day on Wall Street. Outlook was grim and reality was settling in with Americans. Now the exact opposite is true, speeches appear to be carefully calculated and responses on Wall Street are more positive.
Wall Street for the most part believes the “bottom” is in. Washington believes the worst is over but we could still have some tough times ahead.
Most of the economic data that spurred the month and a half record breaking rally has started to retrench (retail sales and existing home sale). There are still more down economic data months than up which points to a negative trend.
Wall Street points out to investors that the market historically rallies over 50% after a large correction “bottoms”. The Dow Industrial average touched 6440 in February 2009, if it were to rally 50% then the Dow would be 9660. The Dow Industrial Average was closed at 9034 on January 2, 2009. This “rebound” would leave the Dow Industrial up 6.9% from the beginning of the year.
If the economic data continues to slide and the Market starts another correction, what percentage does it historically go down? It seems mostly the positive view is more statistically backed than the negative view. Being negative could save you money while the positive could make you money, what can you afford?
We are taught it is better to think of the glass as half full; but when you only have half left being negative may be the only way to keep it half full.
