More Rough Days Ahead For Stock Market Says Local Financial Analyst

The stock market dipped and a few hearts raced before the final bell on Wall Street today, Sept. 21, as the Federal Reserve announced a new plan to jumpstart the U.S. economy.

After an initial schizophrenic reaction to the Fed’s plan to invest in longer-term Treasury bonds, the Dow Jones Industrial Average ended the day down 283 points. A far cry from the the Dow took on Aug. 8 but still enough to loosen a few neck ties on Wall Street.

The Fed’s new $400-billion program will see it buy up more long-term Treasury bonds while selling shorter-term notes. Proceeds from the sale of those notes will be reinvested into mortgage-backed securities.

Fed Chairman Ben Bernanke is hoping this will give the long-suffering housing market a short in the arm while at the same time keep long-term interest rates low.

Small investors looking for relief from the roller coaster market might be better turning off the TV and reaching for the Tylenol, said Anthony Delgado, a financial advisor with , 138 North Moon Ave.

“The reality is we are in a harbor surrounded by fog and everyone is looking for that beam of light but it’s all speculation. There have been beams of light that turned out not to be beams of light at all. This market is on a hair trigger,” said Delgado who pointed to the prevalence of algorithmic trading programs as part of the reason for huge market swings.

“These programs are trading on information with no human input and on information that perhaps is not as important as the program interprets it to be.”

Delgado cautioned small investors to keep the big picture in mind with their own investments.

“Today really was not that excessive of a drop,” said the Riverview resident who has more than 20 years in the business.

Touting the Fed’s new Treasury buyback as a fix for the ailing U.S. economy is a mistake, believes Delgado.

“Low interest rates are not our problem. You have to go back to the 1950s to get the kind interest rates we have today. The real issue is the lack of jobs.”

The financial world will focus on Europe in the upcoming week where Greece is in major danger of defaulting on its debt.

“We are still being whipped by the winds from Europe and until they get their house in order that will continue. Europe is now starting to talk about some sort of TARP program – something they laughed at us for – but in Europe you are talking about 17 different countries in the European Union. We have one Congress and look how difficult that was,” Delgado said.

TARP, the Troubled Asset Relief Program, gave the U.S. Treasury billions of dollars in 2008 to prop up weak U.S. banks at a time some believed the financial system was in danger of collapse.

“If Greece defaults, attention will then turn to Italy and their debt. The major concern for the U.S. will be how much our big banks hold of that foreign debt. Our banks have said they own very little of that debt but that will be key for the U.S. economy.”

Either way, investors are in for a bumpy ride in the coming months, Delgado said.

"That’s why there is so much volatility from day to day because we don’t know what’s round the corner."