Market Outlook: 03-30-09

Robert Hsu, March 30, 2009

Over the past few weeks, there have been a lot of happenings affecting the global stock markets. The U.S. Federal Reserve put up an additional $1.2 trillion to purchase debt securities last week. And then investors finally saw some details about the Treasury's Public-Private Investment Program to clean banks' balance sheets and attract private investors to buy up to $1 trillion in toxic assets.

These moves by the U.S. have definitely boosted investors' spirits and the global stock markets. In fact, global investors cheered the Treasury's plan, fueling a major global market rally last Monday. These gains are worth being noted, especially since we haven't seen this type of bullish action in many weeks. So let's take a look at the stock market gains from around the world:

The Dow Jones soared 6.8%, or 497 points, which was its biggest gain since late October,
The S&P 500 soared 7.1% to 822.92 -- up nearly 22% from a 12-year low on March 9, and the fastest two-week advance since 1938,
Europe's FTSE index rose 3% on Monday,
India's Sensex surged 5.1%,
Hong Kong's Hang Seng Index added 4.8%,
Japan's Nikkei Index jumped 3.4%,
And the MSCI World Index, an index of 23 developed nations, has added 21% since March 9.

Many investors were excited about these gains -- and for good reason, considering that the market gained back in only a few days what it took months to lose. But at the same time, investors cannot get caught up in these sudden gains, and lose sight of the bigger picture. Although this rally was great, I think it pushed the U.S. and European markets into "overbought" territory. As a result, I expect U.S. and European stocks to consolidate their gains over the next two weeks, likely in a sideways trading pattern.

That's because the U.S.'s economic woes are far from over. So, we need to keep perspective on how the U.S. economy is responding to the Fed and Treasury's recent action as well as the economic consequences of these actions. You see, there is a rising concern about the inflationary affects of the Fed's plan to pump money into the economy. And inflation, combined with a depreciating U.S. dollar has compounded concerns about the future of the U.S. economy.

So let's keep an eye on the markets and economy, and carefully gauge what we can expect from them next.

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