Monday’s historic stock market rally was a good — make that great — start to repairing damage done to investors in recent weeks.
But local financial experts said it is too early to declare that the worst is over. The 936-point gain in the Dow Jones industrial average could signal the end of a bear market or just a bear-market rally. In either case, they recommended caution.
“If you’ve been on the sidelines with any amount of cash, you don’t need to be in a hurry,” said Paul Dickey, INS Capital Management in Denver. “This isn’t something you manage in the course of minutes but over weeks and months.”
Investors appeared to react to developments over the weekend, including government plans to buy stock in banks. U.S. credit markets were closed Monday, so it wasn’t clear whether banks would resume lending.
“We need to see some huge improvement in the credit markets. We’ll get an idea (today) whether that’s going to happen,” said Fred Taylor, principal of Northstar Investment Advisors in Denver. “The problems in the credit markets and financial stocks are what led us into this problem, and they’re going to have to lead us out.”
Some observers saw a link between the frenzied selling of last week and unrestrained buying Monday.
“There was panic last week as people were bailing out,” said Craig Carnick, president of Carnick & Co., a financial-planning firm based in Colorado Springs. “Now we’re seeing people acting out of fear of missing an all-time buying opportunity. The buying panic can be just as dangerous as the selling panic.
“You should just sit pat and let the dust clear a little bit,” he said. “Investing success is not an event, it is a process. If you have a strategy, what happened last week or what happened (Monday) doesn’t change that strategy.”
Uncertainty remains over how the government’s bailout plans will proceed, and the economic outlook remains grim. Those factors could push the market down further.
Monday’s gains could be erased down the road “if we continue to see unemployment go up, and factory orders slow down, things that tell us we are in fact in a recession,” said Mac Clouse, a finance professor at the University of Denver’s Daniels College of Business.
“We’re giving the banks a lot of liquidity, but that doesn’t mean businesses are going to get loans to expand capacity in a time of recession.”
Greg Griffin: 303-954-1241 or ggriffin@denverpost.com
