Market Response to Goldman Sachs (NYSE:GS) Fraud Charges Underscores Investor Jitters

Friday, April 16th, 2010

Most have heard that Goldman Sachs (NYSE:GS) was charged with fraud today by the SEC, so we won't get into all that, as you can read about that anywhere, what is far more important to me is the market response to it, which seems to imply investors are on edge from the strong showing of equities and commodities so far in 2010, and are ready to flee them at the drop of any negative news.

A number of investors and analysts have been talking about the possibility of the market pulling back in both sectors as there is no way it can sustain the rally at this pace, especially the equity market, which has less going for it in my opinion than commodities.

You would have thought the news of the fraud charges was some type of financial earthquake rather than the benign allegement of an event that wasn't that big of a deal, even if Goldman is ultimately convicted of wrongdoing in the matter.

There is no doubt the over-response of the market comes from nerves of investors being on edge, and now seem to be operating from a highly defensive position. There has just been too much "good" news thrown around out there concerning the market, and the weak economy and slow recovery, if there even is one, makes the rate of equities rising more of a herd response with wishful thinking and exuberance, rather than based on economic fundamentals.

This is why the response to the Goldman Sachs fraud charges have been so strong: the market is looking for an escape valve to plunge into a correction; one that has been long needed to reflect the reality of its condition, rather than getting people excited about something that isn't happening, or at minimum, hasn't been proved to be happening.

If this story brought this type of reaction, think of what will happen when real negative news emerges which will actually have a real effect on on investors and traders. Then we'll see the market really fall apart, as it's largely based on smoke and mirrors at this time, and illusory reflection won't be able to hold up much longer. This case proves investors are ready to pull their money out of the market, they just need a big enough reason to do so. I think that reason, or string or reasons, won't be long in coming.

Article by Gary B

The views expressed are the subjective opinion of the article's author and not of

Tags: commodities , equities , goldman sachs , investing , stock market

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