Market down on profit-taking
by Peter Switzer
The Dow gave up around 160 points overnight, but it was a lot lower in early trading and so what we’re seeing now is profit-taking and you can blame this on the baby steps made by the EU over the weekend in sorting out its debt mess.
For the record, the Dow ended 162.87 points, or 1.34 per cent, lower to 12,021.39 while the S&P 500 dropped 18.72 points, or 1.49 per cent, to 1236.47.
The UK not signing up to the fiscal reform plan didn’t help, but it’s a lower order issue. Of course, what we’re seeing is better than what would have happened if the other 26 countries of the EU carried on as though they didn’t want to mend their ways.
Baby steps forward happened — not giant steps — and this is why the sellers came out in force to book profit in case another market fall is on the cards.
The positive reaction to the EU summit last week was logical but it’s also rational to ask the following questions: how much progress have they made in solving the current debt problems and what has happened to lower interest rates paid by European governments on their bonds?
On the subject of profit-taking, Wall Street has been rallying since 28 November so a pullback is no surprise.
The market now wants some European Central Bank (ECB) action to add liquidity and to bring bond rates down but the Germans don’t want to play the Ben Bernanke QE or quantitative easing card, despite the fact that most economists believe it’s needed.
President Barack Obama wants a European QE card played to ensure that a European recession won’t derail the US recovery in an election year. He has been goading the EU leadership but the German fiscal discipline and fear that a loose money supply will create inflation means that there’s no sign that the ECB will play ball.
In fact, the ECB boss Mario Draghi last week said that his central bank will not be buying PIIGS debt.
The market wasn’t helped by the credit ratings agencies, which are now talking about downgrading EU countries that should include France and could even throw in Germany.
The market sell of today was on weak volume and it isn’t necessarily the start of something bad for investors but when doubt reigns, it’s hard to have a sustained rally.
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Published on: Tuesday, December 13, 2011
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