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Wednesday, August 25, 2010

US stocks plunge .. Whats next in stock markets?

U.S. home sales have fallen for the third consecutive month to the lowest rate since 1999 and this has pushed down stocks and fueled fears of a 'double dip' recession in the housing market. In addition to this, U.S. stocks have fell for a fourth straight day and they have closed at their lowest levels in past seven weeks.

The Dow Jones industrials ($INDU) briefly dropped below 10,000 but recovered a bit to end the day down 134 points, or 1.3%, to 10,040.

This is an effect of end of a popular government stimulus program which has drove home sales in July to their lowest levels in more than a decade and has fueled fresh concerns about the economic recovery. If this leads to double dip recession, you know where the stock markets could possibly go. The only direction could be southwards.

What would be direction of worldwide stock markets now? I recently came across an article which states why the U.S. stock markets could crash in September. And if US stock markets go crashing, you don't need any god to tell you what would happen in Indian stock markets!

Checkout: Is another market crash coming?

U.S. stock markets are running at earnings ratio of 20 whereas historical ratio has been around 16. Same is with Indian stock markets. Valuations seems to be on higher side. NIFTY P/E ratio is at 23.13 as on 24th August which I feel is on higher side. Better to have cautious approach in such times. Better to wait and watch.

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