The Economy and Consumer Confidence Mean a Lower Stock Market

The last year has been terrible on Wall Street as the overall market has plunged by 50% or more from its highs. The individual investor has been hurt in a big way, as retirement accounts and personal investment portfolios are ripped to pieces by drops that many thought they would never see. Stocks that were once seen as bellwethers are now no longer even in business. It seems that things couldn't possibly get worse for the stock market, but could they? They certainly could and here are five reasons the market may not quite be at the bottom just yet.

1. There are too many investors who think that we have hit bottom. Everyday if you turn on business television you hear quite a few strategists and mutual fund managers who believe the lows we hit in late 2008 will be the lowest the stock market will go. It strikes me that given the economic uncertainty there is too much certainty that the market has hit bottom.

2. The economic uncertainty in today's environment is tremendous. The economy is going south in a hurry and there are absolutely no signs of a recovery. The truth is no one knows just how bad it could get or how long it could last. If the economy ends up in a depression I suspect we will find that stocks hadn't "priced in" the worst that things could possibly get.

3. The finances and balance sheets of companies are in question at this point. We have reached a point where investors and non-investors are all getting very scared to get into the system because it seems we can't believe the numbers that companies are giving to the public. When an executive of a company assures investors everything is fine and then three days later they go bankrupt the market has issues.

4. The American consumer has never had lower confidence than they currently do. Currently our economy is extremely dependent on the consumer, which certainly doesn't bode well for the near future for the stock market. Consumers certainly don't want to spend when they are worried about losing their job. The entire bailout thing has really ticked off a whole lot of Americans as well.

5. There hasn't been that true capitulation point where everyone just seems to give in. Analysts, economists, and individual investors continue to expect positive returns from stocks and continue to bottom fish. In the past we have always seen capitulation at the bottom of a major cycle like this one.