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Jeff Saut: Energy Sector Powers Up

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Could a broader rally be in the cards?

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Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

Back in January, Stephen Moore wrote a Wall Street Journal article entitled, "Atlas Shrugged: From Fiction to Fact in 52 Years."

For those of us familiar with Ayn Rand's classic book, recent events eerily mirror her writings about the economic carnage caused by big government running amok. As Mr. Moore wrote:

"For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism."

Ronald Reagan said that the 9 most terrifying words in the English language are, "I'm from the government and I'm here to help." Reagan also asserted that "government is not the solution to our problem; government is the problem." Even President Clinton promised smaller government. But President Barack Obama appears to usher in an era of the kind of expanded government that would have terrified Ayn Rand.

To be sure, last week marked a historic shift in the country's ideological direction, with the announcement of the proposed new budget. One can't help but wonder if politicians aren't using the dour economic environment to expand government's role and push-through long-wished-for programs.

Meanwhile, the stock market has been doing some "voting" of its own, and the results aren't good. Indeed, the S&P 500 (SPX) stood at 1005 on Election Day, but has since lost some 27%. More importantly, according to the invaluable Bespoke Investment service, of the current components of the Russell 3000:

  • The average stock is down 53.16% during the bear market.

  • Just 4.13% of stocks in the index are up.

  • A whopping 59% of the stocks in the index are down more than 50%.

  • 7.3% of the stocks in the index are down 90%.

  • 125 stocks in the index are trading for under $1 per share.

  • Nearly half (46%) of the stocks in the index are trading for less than $10/share.

Since the Russell 3000 and ValueLine indices are likely the best proxies for the average retail investor's portfolio, is it any wonder participants are currently apoplectic? Combined with the housing horror, this has left consumer confidence plumbing all-time lows. And most of the indexes I follow are also plumbing lows below those last seen in 2002 and 2003.

All of this begs the question: "Are we about to experience another huge leg down in the major market averages; or, is this an undercut low?

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No positions in stocks mentioned.
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