The index is down nearly 3% from its recent high in June 2009. This could be bad news for global financial stocks, given that a weaker economy could mean fewer profits for companies with top stocks. In addition, as investors digest the negative economic outlook, they may gravitate toward safer, more volatile investments like the S&P 500 Index over more conventional, safer, blue-chip stocks.
"We see some value in the index going down as investors gravitate toward it and away from equities following the Fed's rate hike announcement," said Edward Jones, Executive Vice President, chief investment officer of Scottrade. " Investors appear to have stopped looking at the business side of the equation due to the uncertain global economy and do not have adequate numbers to determine the health of their portfolios. We believe the index will resume a modest rally as economic data begin to reflect a recovery, possibly in Q2, although we expect that it will reverse as we move into Q3." Investors should consider the fact that even with the Fed's actions, global economic indicators such as oil prices, consumer sentiment, durable goods orders, and indicators of international trade pick-up will likely continue to support the S&P 500 over the long term.
Many economic analysts expect the stock market to face more prolonged weakness this year as consumer spending cuts and the expiration of bank loans and mortgage loans further crimp economic activity. Investors are concerned that economic stimulus programs, if the federal government takes action, will not be enough to support the sagging economy. The federal budget will need to contain additional measures to deal with ballooning deficits and record high unemployment rates.