World Stock Markets Remain Volatile

Stock markets remain volatile with investors unsure whether the market has bottomed out or will decline even further. Last week Wall Street suffered its worse week in history with massive selloffs on world markets. Investors are waiting for the effects of the $700 billion dollar bailout to be felt but credit markets remain unaffected so far.

Amid the chaos some saw reason for hope. U.S. stock futures indicated a sharp rebound in store for the major indexes ahead of the market's opening bell on Monday. Dow Jones industrials futures rose 235 points, or 2.8 percent, to 8,605. Nasdaq 100 futures rose 38.5, or 3 percent, to 1,321.00; and Standard & Poor's 500 futures added 31.8, or 3.5 percent, to 922.80.

Asian markets were slightly higher as the week began with indicators higher in most Asian markets. Despite the week's positive start it is still too early to predict how western markets will react. Investors will be closely watching to see if the Treasury Department's plan to buy equity in troubled banks, rather than just their bad assets, will be enough to halt the decline on Wall Street and unfreeze credit markets which are essential for the function of the everyday economy.

Despite drastic and unprecedented actions by governments, investors remain uncertain about the future of markets. Chuck Gabriel, managing director of Capital Alpha Partners in Washington stated, "We're running out of arrows in the quiver, there's just not much left after this, and at some point we're going to find a bottom." The Dow had its worst week in both point and percentages and blue chip index has lost an astounding 22.1 percent of its value. US stocks have declined $8.4 trillion in the past year, measured by the Dow Jones Wilshire 5000 index. It is easy to see why investors are fearful.

History has not been helpful in predicting market directions. During the 'crash' of 1987 the market posted huge losses over the course of two days but stabilized quickly. The current crisis has played out over a period of weeks with each drop in the Dow greater than the last. Said market strategist Steve Goldman, "I have hundreds of indicators that I follow, and we're in an environment where standard indicators tested throughout history should not be applied. We've never seen this kind of volatility, these kinds of declines, and it's a market not to be a hero in."

The Treasury's plan to buy shares in several troubled banks may have had a somewhat calming effect on Wall Street but there is some resistance to the plan by some bankers. Said David Kotok, chairman and chief investment officer of Cumberland Advisors, "What banker, if they can avoid it, wants to have the federal government as its partners after witnessing the results over the past year? In the US the government is entering uncharted waters with the bailout and the plan to acquire shares in banks which adds to the uncertainties faced by markets.

One would think that the financial crisis in the US would adversely affect the dollar but the US dollar remains steady against major world currencies on Forex markets. Historically, investors turn to the dollar in times of crisis because of its perceived stability and the fact that the US has the word's largest economy. Hopefully it can continue to fulfill its historical function in Forex exchanges.

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