Didn’t all the experts say that today was going to be an Obama rally on Wall Street? There was talk of the Obama Pop and the idea that the market would be one of the many recipients of the Obama honeymoon. Although something to watch for, even the Obama effect wasn’t able to tame the financial selloff. If you have a bank anywhere in your investment portfolio, you lost money today. Why are banks taking such a hit right now? The reason goes full circle to a basic human instinct. This instinct drives our actions at the most fundmental human level. It causes us to act in sometimes irrational ways and it causes our decision making process to sometimes break down. Bank stocks, which drove the stock market down, were victims of investor fear.
First, in order to understand this day, we must make the distinction between the stock and the company. Although a stock represents a company, it is not THE company. This is important because at a fundamental level, investors understand that when a company’s stock goes down, the company isn’t necessarily losing value so a stock may be seen as being “on sale.”
The banking sector is not in that position. Not only does the market believe that the stocks may be going to zero, but there is market sentiment that we may be heading to “a complete global banking meltdown” according to CNBC. In short, the problem with bank investments is not just the stock, but the entire banking model on a global scale.
As long as banks are unstable, so will the market be. It is accepted that the banks lead to the current financial condition and it doesn’t appear to be coming to an end any time soon. The Obama Rally was largely ignored in the face of the fundamental sentiment of fear.
Lastly, and to a much smaller degree, investors were holding on to the inauguration as a positive event in the midst of a lot of negative and now that it has come and gone, what does the market have to look forward to?
There is not a lot of good to write about today but let’s not forget the inauguration. Truly a historic event in our nation’s history.