Is A Recession Priced Into Stock Market?

Let's look back over Friday's activity before the markets open for today.

We had a very weak jobs report on Friday, but the market was not overly phased. Selling did take hold after news that the credit rating on bond insurer MBIA was being cut from AAA to AA. Friday saw a mixed close, on reduced volume.

The news that the employers had shed 80,000 jobs in March, quite a few more than expected, and that unemployment had jumped from 4.8% to 5.1%, the highest reading since September 2005, has fueled expectations and fears that the economy is indeed headed for, if not already in, a recession.

This morning's pre-market suggests a higher open, however. Last Tuesday we saw a nice upsurge with all of the major indexes notching gains of 3% or more. Why the bullish enthusiasm?

Bear market rallies tend to give up their gains quickly, but so far the market has been stubbornly holding onto them. Some market experts are arguing that recession and poor economic news is already priced into the market. It is true that the market is a forward looking creature.

If the market has priced in the likelihood of a recession and we are seeing buying based upon an anticipated turn around, then the market is predicting a short, shallow recession. As retail traders and investors, it is a bit expensive to fund our predictions with large commitments of capital. So, be cautious and make sure you have a plan to protect against a potential downward slide if you choose to get long at this point in time.

Let's see what the market has in store for us this week...

Christopher Smith
TheOptionClub.com