American Markets - Stagnant Job Growth

I thought it necessary to take a deviation from stock price analysis, as we ponder the gloomy economic news from around the world. On Friday, the U.S. reported no decrease in the unemployment rate, while Europe announced plans to move forward with another stimulus package for the struggling Greek government. Meanwhile, the Fed is contemplating a third round of quantitative easing, in an attempt to ignite the stagnant U.S. economy.

As the negative news continues, I have begun searching for reasons why U.S. companies are not investing in new employees. The vast majority of U.S. companies have experienced high earnings over the past two quarters, yet "human capital" investment has been in short supply.

In searching, I have come up with a reason for the freezing of investment in employment by U.S. companies - political uncertainty. With U.S. debt at it's highest level in U.S. history, the war in Iraq, an attempt to socialize U.S. healthcare, and crumbling Medicare and Medicaid plans, American companies have no choice but to stay as cash-laden as possible.

As we move forward, the question will become, "Can U.S. politicians make the difficult decisions necessary to foster growth in the U.S.?" Any comments encouraged.

What is the Future for American Markets?

I've had the question asked of me frequently of late, "Why are the stock markets so volatile?" My simple answer lies in the basic principle of volatility - uncertainty. Uncertainty of a true measure of value. Uncertainty of government. Uncertainty of parallel markets, i.e. European stock markets, commodities markets, etc. However, there is a more important issue to be addressed in volatile markets: the Herd Mentality.

The Herd Mentality is a classic financial phrase attempting to describe the actions of market participants. Market participants often buy and sell securities based on technical speculation. This most often pushes company stock prices lower, while undermining fundamental indicators of company strength or growth potential, i.e. Price to Earnings (P/E) ratios, Earnings Per Share (EPS), Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), etc. When following such trends, investors tend to move as a group (or Herd), pushing stocks below previously held fair values, regardless of financial strength.

What is the future of the American stock markets? This can only be determined by company stock price analysis - the topic of my next blog on or before September 3rd.