Stocks are shaky


Is the sun setting?

On April 22nd, I wrote a comment to a reader of my Effective Demand blog. I said…

“My view now is that the Dow Jones will make a publicity effort with hopes to get back up to 16800, then come down from there.”

The Dow Jones made it to 16715. Today we see stocks falling on production news. Today we read from Bloomberg.

“The primary sentiment right now is cautious and nervous,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “It’s more a matter of capital preservation than it is trying to generate returns. This is a time of caution. More people are looking to make sales and raise cash than they are to put cash to work on the weakness.”

Is the business cycle coming to an end? The quote makes me think that consumption by capital income will shrink now due to efforts of capital preservation. So any increase in consumption we see from increased labor income could be offset by capital taking a consumption step backward.

Back in January, I said that the market would go through ups and downs through the year but not go up nor go down. It is simply the pattern of a market reaching the end of its cycle. So far this year, we see that pattern.

In April, capacity utilization went down as employment went up. That is a sign that we are against the effective demand limit, which also means a tight situation for the stock markets.

There are underlying messages of concern passing through the stock markets.