Over the last eight weeks [June, 2006] I’ve been spending a lot of time reading articles describing the current market conditions…trying to figure if it really affects penny stock investors.

Are we in a bull market…are we wading into a bear market. Or is the recent rally just a dead-cat bounce?

The dead cat bounce refers to a short-term recovery in a declining trend. There’s a (relatively) old saying in investing: even a dead cat will bounce if it’s dropped from high enough.

No matter how you slice it…I’m not sure it even matters to penny stock investors like you and me.

For example…stocks surged in Japan this week as reports showed growth in manufacturing and exports. Markets rose across Asia as investors were encouraged by Wednesday’s gains on Wall Street.

Strong earnings reports from two bellwether stocks gave penny stock investors hope that rising interest rates wouldn’t kill profits. The recent sell-off, said one economist was “just turbulence.”

The turbulence, it seems, is continuing on this side of the pond. U.S. stocks traded flat to lower Thursday as the market took a breather as higher oil prices and downbeat economic data curbed Wall Street’s momentum. So, what are we to believe, is the market heading up…or heading down?

How does the market look in general terms? As far as stocks are concerned, the S&P index is up just 0.3 percent for the year, the Dow is up 3.4 percent and the NASDAQ is down 2.9 percent. Not sparkling data.
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It’s been a wild and wooly couple of weeks on the international stock markets. But is the recent slide grinding to a halt…or just taking a breather before tumbling some more? And more importantly, what does it mean to astute penny stock investors?

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.
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