Hang Onto Your Bank Rates -- It Could be a Bumpy Ride for Stocks
February 01, 2010
| MoneyRates.com Senior Financial Analyst, CFA
Frustrated with low bank rates? Understandable, but as you think about alternatives, take a careful look at recent signs that the stock market might be in for another dive. If so, it could make those meager bank rates look like a real bargain.
Last year saw a tremendous recovery for the stock market, after the steep declines of 2008. Sometimes, though, stock markets overreact on both the downside and the upside, and it is entirely possible that stocks got a little ahead of themselves by the end of 2009. Certainly, market participants have been showing signs of buyer's remorse of late.
The reason for concern is not in the recent economic news itself, but in the stock market's reaction to that news. For example, last week it was announced that the U.S. Gross Domestic Product grew at an annual rate of 5.7% in the fourth quarter of 2009, at least according to the first estimate of economic growth. This was a much stronger showing than most economists had expected.
Similarly, individual company earnings have been stronger that expected, for the most part. Some 73% of the companies which have released fourth quarter 2009 earnings reports so far have beaten formal analyst estimates.
So how has the stock market responded to these encouraging fundamentals? By losing 3.7%, much of it just last week.
When the stock market reacts negatively even in the face of good news, it can be a sign that expectations -- which translate to prices -- had been built up too high. When this happens, it often means a downward correction in stock prices is necessary.
If that's the case, savings account rates, money market rates, and CD rates might not seem quite so bad over the next few months.
