Market Slides on Obama Bank Plan

On January 21, 2010, President Obama announced plans to regulate proprietary trading for the nations banks. As a result of this shot across the bow, financial stocks and the markets in general declined bringing 2010's stock gains in to the red. The Presidents comments in conjunction with China's decision to limit it's banks lending volume has caused much consternation for the equities and commodities markets. Some market pundits argue that this is the beginning of a long overdue correction the market has been anticipating.
I agree that a market correction is overdue and in the long run healthy for the markets. Before this week, the S&P 500 was up every day in January except one, a sure recipe for a much harder crash. Now, despite better than expected earnings from some industry leading companies, the market seems poised to break down through technical levels and provide the much needed correction. The question is, how long and how low a correction can we expect? And can the nascent recovery handle a declining equities market which up until now has presumably provided a wealth effect for some consumers?
The gains in the stock market have overshot the fundamentals and assumed a "V" shaped recovery, which is not materializing. However, the liquidity provided to the market to recapitalize the banks and reflate assets values is the primary cause of equities prices overshooting fundamentals and therefore approaching another painful correction. It's hard to blame the policy makers for this when the alternative was a failing banking system and imploding economy.

Coakley and Democrats Lose Massachusetts Race

Martha Coakley has lost the Senate race to Scott Brown after the passing of Edward Kennedy in a stunning upset for Democrats and President Obama's campaign to overhaul the health care system. Stock market pundits are calling for a rally on expected political gridlock in Washington D.C.
Scott Brown was expected to win the race by the time the election rolled around and the major indices were all up atleast 1% by the close on Tuesday.
Also Tuesday, IBM announced results after the close and beat expectations but the Street was less than impressed and shares sold off in the after hours giving up all of Tuesdays gains. Pundits figured good results were built in to the stock and the price was no longer cheap, after rallying 60% in 2009.
On Wednesday I anticipate stocks may rally mildly but will not surge as the pundits estimate. In 12 hours from this post, we will find out how the Street interprets the Brown victory.