Market mess ahead
by Peter Switzer
What a rough four weeks with the S&P 500 on Wall Street now down 16 per cent and the S&P/ASX 200 off 10.7 per cent.
Right now we have had the US debt debacle topped by the European sovereign debt mismanagement spill over into a European bank drama, which could spread to US banks, and all this now threatens a much slower global economy.
End result? A perfect month out for a bears’ picnic!
Remember, stocks rise on average three years out of four and so when hedge funds, short-sellers and those who think we’re in a bear market get a chance to sell, they do it with their ears pinned back.
While normal people panic about all of this, professionals are buying the companies they want to hold on a long-term basis, or even on a short-term basis, on every disastrous day for the market. Sure they get it wrong as the market keeps taking a leg down, but each lower purchase drops the average cost of holding their preferred stocks.
The only big risk that could bring these people undone is if they have done it using borrowed funds. If not, they can wait for the turnaround, even if it takes longer than they want.
The market at present
So what lies ahead this week? And are there any developments that could turnaround sentiment?
Before we start, for the record the Dow is now at 10,817.65, down 4.01 per cent for the week and 6.56 per cent for the year to date. The S&P 500 is at 1123.53, down 1.5 per cent on Friday but down 10.66 per cent for the year.
Our S&P/ASX 200 is down 13.8 per cent for the calendar year so far.
These, in simple terms, reflect the fact that the US is likely to grow slower than what was first thought at the beginning of the year. They’ve gone from a three to four per cent scenario to a one to two per cent growth forecast, if they are lucky! Meanwhile, Europe has let the team down even more and this hasn’t helped the global economic outlook, which in turn affects commodity prices, and that’s why our dollar has dived to 104 US cents or so.
The week ahead
Back to the week ahead, watch out for the following:
- The French and German finance ministers meet in Paris on Tuesday and these people will have all market eyes on them.
- Fed chairman Ben Bernanke delivers his speech at Jackson Hole and many market players hope he will utter the words “QE3”. Whatever he says on Friday will make or break the market as the week ends.
- Data-wise, the Chicago Fed National Activity Index, new home sales, durable goods orders, GDP, consumer sentiment and corporate profits will all be watched closely.
The early part of the week will be determined by the Europeans while the latter part will rest on the Yanks, with Friday a huge day with GDP figures out and Bernanke speaking.
On the local front, our central bank boss speaks to the House of Reps economics committee, which should be interesting to see if Glenn Stevens shows some doubt about the tightness of his monetary policy.
Finally, I believe the market is oversold and there will be a turnaround but it could be a few weeks before we get the positive news to make that happen. Until then we will just have to put up with the unpleasant investor manners of bears at a picnic!
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Published on: Monday, August 22, 2011
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