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Market Worries And The Current Correction. Where’s The Action?

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November 30, 2007

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

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Worries over interest rates, subprime problems, the falling dollar and high crude oil prices have resulted in a market correction sending the Dow below thirteen thousand, amounting to a ten percent price drop and giving the drop in the average share price that official event designation.

In response, Fred Bernanke, Chairman of The Federal Reserve, the national banking regulatory body, started talking up a cut in interest rates to stimulate demand in the overall economy and causing a small rally in the Dow to the low thirteen thousands.

So far so good? Maybe yes. Maybe no.

Less a major unexpected world event such as a big disruption of oil supplies, the next major economic event on the horizon is the federal budget. Through spending, tax break, changes in requirements and higher taxes, the federal government stimulates the overall economy and, to be more precise, sometimes certain specific industries and even individual companies and since the Congress is coming back from a brief recess and budget discussions have been prominent in the news this is the next big thing. What exactly is going to be funded and encouraged is the multi-million dollar question. The wars in Afghanistan and Iraq have been profitable for many defense contractors, but that is old news.

It is new news that boost markets and encourage investors to move money and there is talk of a new energy bill but that seems to be small items like increasing fuel efficiency requirements.

But other branches of the federal government are also very influential. The Federal Communications Commission is said to be ready to allow Sam Zell to acquire Tribune with existing newspaper television combinations intact and even may approve the XM Radio, Sirius merger.

As for components of the Dow that are affected by any and all of the above, Exxon Mobile, XOM, is up fifteen to seventeen percent on the high price of crude oil, but the retreat from recent records should have a negative impact on this stock.

United Technologies is a defense contractor. Benefitting from the War On Terror, it is up around nineteen percent this year. Boeing, BA, is also a big defense contractor, but also sells commercial aircraft to airlines around the world. The introduction of its new Dreamliner and the falling dollar should help. It is up around seven percent this year.

General Electric, GE, is pretty diversified but has important defense contracts. It is up five percent this year.

Finally, Caterpillar, CAT, makes construction equipment. Booming world trade increases the need for infrastructure improvements. Its stock is up sixteen percent this year.