The markets have had a much-welcomed rally over the last two weeks. From the minute the Obama Administration took control of the reins of the executive branch, the equity markets have been in a free fall. The consensus seems to be forming that this is what Wall Street calls a ‘dead cat bounce.’ But is it? Can the market form a bottom that provides for a sustainable recovery in the face of still risk-averse credit markets?
In truth, there is a lot more reason for optimism today than at any time within the past 18 months. The bottom is not merely a technical trading range. A bottom is formed when market participants become hopeful that government policy is going to be decidedly friendlier, or at least, not harmful. Because it is government policy first and foremost that can force the economy to its knees, it is likewise government inaction or pro-growth policies that can make markets soar. Government is the one wildcard that can exert an exogenous force on an entire economy. And in the last couple of weeks, even while the equity indices continued to fall, developments in Washington have indicated that markets may soon be turning in a positive direction for good.
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