Market Outlook: 05-11-09

Robert Hsu, May 11, 2009

After watching the global stock markets sell off hard for the better part of 2008, many investors are wondering if we've finally seen a bottom following the incredible rally we've experienced since March.

As you know, the S&P 500 has rallied 34% since March 9. And as a result, the S&P has erased its losses for the year, and it is now in positive territory with a 0.6% gain. So it's no wonder that many are wondering if March 9 is the bottom.

Despite the strong rally as of late, I don't think that March 9 is the bottom for the U.S. markets. It is very likely the low for the year, but considering the continuing economic woes in the U.S., we're likely to see U.S. stocks sell off this fall, possibly revisit this years low, and we may see this low broken in 2010.

While this is a fairly negative outlook for the U.S. markets, we must consider the facts – the U.S. economy is struggling and that will weigh heavily on the U.S. markets this year. Just take a look these few factors:

U.S. GDP growth for the first quarter clocked in at -6.1% -- much worse than most economists were expecting.
U.S. unemployment rate continues to rise. It is now sitting at its highest level since 1981, and I wouldn't be surprised to see double digits.
Obama's stimulus package will not be put to work until fiscal 2010.
There are continuing threats of bankruptcy in the auto industry. Chrysler is already undergoing a bankruptcy restructuring, and there's a very strong possibility that GM will follow suit.

All of these are factors affecting the overall stage of the U.S. economy. That's why I think it will take a while for the U.S. economy to return to the long-term growth rate of 2.5%, and why I believe the U.S. markets will remain volatile this year and possibly test its lows later in the year.

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