The last few weeks have been quite eventful in international equity markets. But has the recent decline come to a halt… or is it taking a breather before falling some more? And more importantly, what does this mean for smart penny stock investors?
Wall Street recently had its worst week of the year, with global stock markets falling dramatically on concerns about rising interest rates and slowing growth. The Dow Jones industrial average, which rose almost 9% in the first four months of the year, is down about 6.5% from the six-year high it reached on May 10, 2006.
Stocks are losing ground as investors fear that the Fed is focusing on inflation and ignoring signs of an economic slowdown, raising interest rates too high and driving the economy into recession.
Global equity markets were rocked last week after gold-tongued US Federal Reserve Chairman Ben Bernanke shocked penny stock investors by saying the Fed would continue to raise interest rates to keep inflation in check.
And this decision will have a direct impact on the penny stock market. Higher interest rates are hurting penny stock prices because investors believe it will reduce economic growth and corporate profits.
So why is inflation rising? Higher energy costs. Traders and penny stock investors worry that Gulf Coast refineries and oil production facilities could suffer again this summer and fall as hurricane season officially kicks off.
And higher interest rates have the ability to affect the entire economy. Finance charges on credit cards will rise. Mortgage and home loan rates will also rise, putting additional pressure on home buyers and the softening housing market. After all, it will cost more to borrow for the expansion.
So is this a doomsday signal for the penny stock market? Quite the opposite. While the temptation to sell everything can be overwhelming, some see it as a great opportunity. “I wouldn’t sell, I’d be inclined to buy,” says one New York analyst.
So how exactly is this an opportunity? Many companies caught in the market’s downward spiral are cheaper than they were a few weeks ago. As any seasoned penny stock investor will tell you, buying a great dipping penny stock is not a bad way to make money in the long run.
If you can handle a little volatility. While many blue-chip investors struggle to cope with the unpredictability of the market… this is commonplace.
“Get a grip,” says another observer. A month of dizzying selling has brought the markets into an attractive range. Is it possible for markets to fall further? It is certainly possible. After all, no penny stock is a sure thing. But one thing is certain: “Stocks are much cheaper now than they were two months ago.”