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Wall Street recently stumbled to
its worst week of the year, and global stock markets fell dramatically on
concerns about rising interest rates and slowing growth. After rising
almost 9% in the first four months of the year, the Dow Jones industrial
average has fallen about 6.5% from a six-year high, reached May 10, 2006.
Stocks have been ailing because penny stock investors fear the Fed could
be so focused on inflation that it ignores signs of an economic slowdown,
raises interest rates too high and sends the economy into a recession.
Global stock markets were sent reeling last week after golden-tongued U.S.
Federal Reserve Chairman, Ben Bernanke shocked penny stock investors in
saying the Fed will continue raising interest rates to keep inflation in
check.
And that decision will have a direct impact on the penny stock market.
Higher interest rates hurt penny stock prices because investors believe it
will curb economic growth and corporate profits.
But why is inflation heating up? Higher energy costs. Traders and penny
stock investors are also worried that with the hurricane season officially
under way, Gulf Coast refineries and oil production sites could be damaged
again this summer and fall.
And higher interest rates have the ability to affect the entire economy.
Finance charges on credit cards will rise. So too will rates on mortgages
and home equity loans, putting additional pressure on homebuyers and a
softening housing market. Ultimately, it will cost more to borrow for
expansion.
But does this signal doom-and-gloom for the penny stock market? Au
contraire. While the temptation to sell everything can be overwhelming,
some see this as a great opportunity. "I would not be selling. I
would tend to be buying," said one New York analyst.
So how exactly is this an opportunity? It just so happens that many
companies caught in the market's downward spiral are cheaper than they
were a few weeks ago. And as any seasoned penny stock investor will tell
you, buying a great penny stock when it's been beaten down isn't a bad way
to make money over the long haul.
If you can stomach some of the volatility that is. While many blue chip
investors have difficulty handling the market's unpredictability...it's
par for the course.
So, "snap out of it," said another watcher. A month of dizzying
selling has brought the markets into an attractive range. Is it possible
the markets will fall more? Absolutely. 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."
By:
John
Whitefoot
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