Over the past two days, the major financial media gave investors the impression that the recent stock market "correction" has run its course and that stocks are now trading at bargain prices. Unfortunately, you can't believe everything you hear from the mainstream media.
While it's true the Dow Jones Industrial Average rallied sharply on Monday of this week and also closed in positive territory on Tuesday, the overall stock market has continued to perform poorly.
For example, approximately 1.7 times as many New York Stock Exchange-traded stocks declined in price over the past two weeks, as those that rose. Meanwhile, stocks falling to new 52-week lows outnumbered those rising to new highs by an average ratio of 14-to-1 over this same time period. Even during Monday's 287-point rally for the Dow Jones Industrial Average, 406 NYSE-stocks fell to new lows, versus only 23 stocks that rose to new highs.
So, what really happened during Monday's supposed stock market rally is that the 30 large-cap stocks that comprise the Dow Jones Industrial Average rose slightly in price, while the majority of stocks continued to fall.
Perhaps more importantly, stocks in the Utilities, Consumer Staples, and Healthcare sectors have been the top-performing stocks since the Dow Jones Industrial Average fell 520 points during the two-day period on July 26 - 27.
This is a very important development for the following reasons: First, many money managers expect the Federal Reserve to cut short-term interest rates by the end of this year and stocks in the Utilities sector tend to rise when interest rates fall. Meanwhile, Consumer Staples and Healthcare stocks tend to be among the best-performing stocks during slowing economies, as investors seek stocks of companies whose sales and earnings are affected the least by a slowing economy.
But, stocks in all market sectors tend to decline in environments characterized by a slowdown in economic growth and rising inflationary pressures. And, even the Fed has admitted during its recent meetings on interest rate policy that the economy has slowed considerably while inflationary pressures remain a concern.
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