The Current Stock Market Jump: Focus on Fundamentals

As you can't help noticing, the Fed cut rates earlier this week. And this means that the stock market is doing a victory dance. While this may not really help you if you have a subprime loan, the Fed rate cut is probably helping you if you have a look inside your investment portfolio. The move is expected to help improve earnings reports (money just became cheaper), but it still doesn't change something important about the stock market. Fundamentals.

The Motley Fool points this out about stock market fundamentals:

If you truly want to make your fortune in the stock market, tune out the noise of everyday news. Instead, focus on companies on the most fundamental level. That means sifting through filings to find the best-run companies, determining good prices at which to buy shares, and then holding and even buying more during inevitable market volatility.

The idea is to look for companies that have solid management, and good underlying fundamentals. Sure, as Motley Fool points out, Kodak (EK) went up like everybody else. But how long will that last? Without an ability to adapt to new technology, and the fact that the company isn't very well run, are kind of seen as drawbacks. A temporary lift from the Fed rate cut won't change that.

Other companies, like Exxon (XOM) may be in a different place. Exxon isn't likely to tank anytime, nor is the rest of Big Oil. And even questions about future validity of Big Oil (running out of resources, primacy of alternative energy) aren't likely to be put to the test until well down the road. Companies like Nike (NKE) and Google (GOOG) adapt to change, and they have a solid basis.

So, before jumping into stocks, take a deep breath. You still need to analyze the company. And besides, once the novelty and free-for-all of the Fed rate cut wears off, the stock market will have a bit of a correction. You'll want to identify solid companies so that you can buy more of them when the inevitable happens, and so that you benefit more as the stock market overall makes future gains.

Tags: personal finance, personal finance blog, Fed rate cut, stock market fundamentals,
investing blog, subprime loan, Big Oil