The document summarizes factors that contributed to recent volatility in global equity markets in mid-October, including historically weak performance in October, concerns over Ebola, slowing global growth, deflationary pressures worldwide, and various geopolitical tensions. It discusses the sharp drops and rebounds seen in markets in mid-October 2014, with the Dow falling over 460 points on one day amid increased uncertainty before regaining most losses by the end of the week. Central bankers' comments about further economic support helped reassure markets in the following week.
This monthly briefing highlights that emerging economies face renewed financial turbulence, that US economy registered robust GDP growth in the fourth quarter of 2013 and that the last quarter of 2013 revealed a heterogeneous economic performance in the developing world.
For more information:
http://www.un.org/en/development/desa/policy/wesp/wesp_mb.shtml
Trump's Twitter, currency manipulation and the trade dispute are keyHantec Markets
Donald Trump sending out a Twitter storm on currency manipulation and railing against the actions of the Fed have brought in an extra dimension for traders to consider this week. His threats to ratchet up the trade dispute with China also means that geopolitics remain a key factor. We consider the outlook for forex, equities and commodities.
This monthly briefing highlights that emerging economies face renewed financial turbulence, that US economy registered robust GDP growth in the fourth quarter of 2013 and that the last quarter of 2013 revealed a heterogeneous economic performance in the developing world.
For more information:
http://www.un.org/en/development/desa/policy/wesp/wesp_mb.shtml
Trump's Twitter, currency manipulation and the trade dispute are keyHantec Markets
Donald Trump sending out a Twitter storm on currency manipulation and railing against the actions of the Fed have brought in an extra dimension for traders to consider this week. His threats to ratchet up the trade dispute with China also means that geopolitics remain a key factor. We consider the outlook for forex, equities and commodities.
In the past week European and global politics, strong US growth data, mixed global macro numbers and eurozone, Chinese and Indian central bank policy have eclipsed Trump-mania.
What is perhaps more remarkable is markets’ reasonably benign, “risk-on” reaction, bar the euro’s sell-off in the wake of today’s ECB policy meeting.
One interpretation is that markets have become complacent to the risks presented by President Trump’s constellation of pseudo-policies, surging nationalism in Europe, the UK’s uncertain economic future and continued capital outflows from China.
I have a somewhat different take, namely that markets are rightly discounting some of the more extreme and perverse scenarios, including:
Protectionist US policies coupled with higher US yields and a strong dollar collapsing tepid emerging market, and eventually global, economic growth;
The “no” vote in the Italian referendum leading to the economic collapse of the European Union’s third largest economy;
Surging European nationalism culminating in the collapse of the eurozone and/or European Union;
The British government opting to sacrifice growth in exchange for a hard version of Brexit and;
Capital outflows from China ultimately forcing policy-makers into accepting a Renminbi collapse and shocking a corporate sector with significant dollar-debt.
Ivo Pezzuto - FEDERAL RESERVE'S RATE RISE. COMING SOON? The Global Analyst Se...Dr. Ivo Pezzuto
This article, written on August 31st, 2015 by Prof. Ivo Pezzuto, predicts that mostly likely the Federal Reserve will hike interest rates at the December 16th-17th FOMC meeting, given the current global economic turbulence and outlook, and that a rate rise will be more likely at the end of 2015 or in early 2016 if the US economy will continue to improve and in the absence of systemic crises.
Fasanara Capital Investment Outlook | February 1st 2015
1. Seismic Activity On The Rise
2. No Volatility No Gain
3. The Role Of Optionality
4. Crystal Ball
5. Deflation Is A Multi-Year Process
6. Three Big Trades for 2015
1. Reflation Phase To Be Temporary, More Downside Ahead
Earlier on in 2016, ‘random and violent markets’ went off to panic mode out of (i) fears over China’s messy stock market and devaluing currency, (ii) plummeting oil price, (iii) strong US Dollar. Today, we believe complacent markets are similarly illogical and over-shooting, this time on the way up. As we re-assess the validity of the underlying risks, we expect a shift in narrative in the few months ahead and a sizeable sell-off for risk assets.
2. Four Key Conviction Ideas
We analyze below our key ideas for the next 12 months:
Short Chinese Renminbi Thesis. In Q1, China only managed to keep GDP in shape by means of graciously expanding credit by a monumental 1 trn $. Unsurprisingly, at 250% total debt on GDP, you cannot borrow 10% of GDP per quarter for long, without a currency adjustment, whether desired or not.
Short Oil Thesis. Long-term, we believe Oil will follow a volatile path around a declining trend-line, which will take it one day to sub-10$. Within 2016, we expect global aggregate demand to stay anemic and supply to surprise on the upside, inventories to grow, primarily due to the accelerating speed of technological progress.
Short S&P Thesis. To us, the S&P is priced to perfection, despite a most cloudy environment for growth and risk assets, thus representing a good value short, for limited upside is combined with the risk of a sizeable sell-off in the months ahead.
Short European Banks Thesis. We believe that micro policies at the local level, while valid, are impotent against heavy structural macro headwinds, and only the macro environment can save the banking sector in its current form in the longer-term. Macro structural headwinds for banks these days are too heavy a burden (negative sloped interest rate curves, deeply negative interest rates, deflationary economy, depressed GDP growth, over-regulation, Fintech), and will likely push valuations to new lows in the months/years ahead.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Trump continues to be a driver of market sentimentHantec Markets
Traders that have been getting worked up by the impact of "risk on, risk off" are now having to get used to this morphing into "Trump on, Trump off" (as dreadful as this sounds). You even have some expanding this with "Trumpflation" and "Donald down", but this will be the final time you hear these terrible terms on these pages. Anyway, Donald Trump continues to have a significant impact on market sentiment across financials with forex and commodities especially driving off moves on Treasury yields and the dollar. With a light economic calendar this is likely to continue this week.
Financial Wealth Management benefits a basic knowledge of the current economic climate. Download this free report on the state of the economy, government, and how they affect YOU.
In the past week European and global politics, strong US growth data, mixed global macro numbers and eurozone, Chinese and Indian central bank policy have eclipsed Trump-mania.
What is perhaps more remarkable is markets’ reasonably benign, “risk-on” reaction, bar the euro’s sell-off in the wake of today’s ECB policy meeting.
One interpretation is that markets have become complacent to the risks presented by President Trump’s constellation of pseudo-policies, surging nationalism in Europe, the UK’s uncertain economic future and continued capital outflows from China.
I have a somewhat different take, namely that markets are rightly discounting some of the more extreme and perverse scenarios, including:
Protectionist US policies coupled with higher US yields and a strong dollar collapsing tepid emerging market, and eventually global, economic growth;
The “no” vote in the Italian referendum leading to the economic collapse of the European Union’s third largest economy;
Surging European nationalism culminating in the collapse of the eurozone and/or European Union;
The British government opting to sacrifice growth in exchange for a hard version of Brexit and;
Capital outflows from China ultimately forcing policy-makers into accepting a Renminbi collapse and shocking a corporate sector with significant dollar-debt.
Ivo Pezzuto - FEDERAL RESERVE'S RATE RISE. COMING SOON? The Global Analyst Se...Dr. Ivo Pezzuto
This article, written on August 31st, 2015 by Prof. Ivo Pezzuto, predicts that mostly likely the Federal Reserve will hike interest rates at the December 16th-17th FOMC meeting, given the current global economic turbulence and outlook, and that a rate rise will be more likely at the end of 2015 or in early 2016 if the US economy will continue to improve and in the absence of systemic crises.
Fasanara Capital Investment Outlook | February 1st 2015
1. Seismic Activity On The Rise
2. No Volatility No Gain
3. The Role Of Optionality
4. Crystal Ball
5. Deflation Is A Multi-Year Process
6. Three Big Trades for 2015
1. Reflation Phase To Be Temporary, More Downside Ahead
Earlier on in 2016, ‘random and violent markets’ went off to panic mode out of (i) fears over China’s messy stock market and devaluing currency, (ii) plummeting oil price, (iii) strong US Dollar. Today, we believe complacent markets are similarly illogical and over-shooting, this time on the way up. As we re-assess the validity of the underlying risks, we expect a shift in narrative in the few months ahead and a sizeable sell-off for risk assets.
2. Four Key Conviction Ideas
We analyze below our key ideas for the next 12 months:
Short Chinese Renminbi Thesis. In Q1, China only managed to keep GDP in shape by means of graciously expanding credit by a monumental 1 trn $. Unsurprisingly, at 250% total debt on GDP, you cannot borrow 10% of GDP per quarter for long, without a currency adjustment, whether desired or not.
Short Oil Thesis. Long-term, we believe Oil will follow a volatile path around a declining trend-line, which will take it one day to sub-10$. Within 2016, we expect global aggregate demand to stay anemic and supply to surprise on the upside, inventories to grow, primarily due to the accelerating speed of technological progress.
Short S&P Thesis. To us, the S&P is priced to perfection, despite a most cloudy environment for growth and risk assets, thus representing a good value short, for limited upside is combined with the risk of a sizeable sell-off in the months ahead.
Short European Banks Thesis. We believe that micro policies at the local level, while valid, are impotent against heavy structural macro headwinds, and only the macro environment can save the banking sector in its current form in the longer-term. Macro structural headwinds for banks these days are too heavy a burden (negative sloped interest rate curves, deeply negative interest rates, deflationary economy, depressed GDP growth, over-regulation, Fintech), and will likely push valuations to new lows in the months/years ahead.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Trump continues to be a driver of market sentimentHantec Markets
Traders that have been getting worked up by the impact of "risk on, risk off" are now having to get used to this morphing into "Trump on, Trump off" (as dreadful as this sounds). You even have some expanding this with "Trumpflation" and "Donald down", but this will be the final time you hear these terrible terms on these pages. Anyway, Donald Trump continues to have a significant impact on market sentiment across financials with forex and commodities especially driving off moves on Treasury yields and the dollar. With a light economic calendar this is likely to continue this week.
Financial Wealth Management benefits a basic knowledge of the current economic climate. Download this free report on the state of the economy, government, and how they affect YOU.
"La tecnología abre muchas vitrinas para exhibir su producto ante su público meta."
"Una página en Internet le dará exposición permanente a su empresa en el mundo digital."
Markets still coming to terms with China devaluation this weekHantec Markets
Market sentiment has been rocked hugely by the shock decision of the People’s Bank of China to devalue the yuan last week. The move is twofold, helping to liberalise the currency in preparation for potentially making it into the basket of the International Monetary Fund’s basket of Special Drawing Rights, but also will help China to benefit in the wake of ongoing economic slowdown.
Trade talks still dominate sentiment with focus on US GDPHantec Markets
The outcome of the trade negotiations between the US and China will continue to impact on market sentiment this week, but the tier one US data will also be in focus with Advance GDP and the Fed's preferred inflation measure along with the forward looking PMIs all key. We look at the impact on forex, equities and commodities.
« Market Perspectives » est notre revue mensuelle des marchés. Elle présente de la façon la plus synthétique possible :
- notre analyse des principaux faits marquants et indicateurs macro susceptibles de dessiner les marchés sur le mois.
- notre vision sur les différentes classes d’actifs
Cette revue sera continument enrichie avec nos indicateurs quantitatifs.
La plupart de nos analyses sont disponibles sur www.finlightresearch.com
Our monthly publication “Market Perspectives” presents a synthetic view of all the asset classes we cover.
The report is composed of six sections covering Macro, Equities, FI & credit, FX, Commodities and Alternatives.
Each section is preceded by a summary of our views on the related asset class.
Most of our publications are available on our web site www.finlightresearch.com
The drivers of renewed euro and sterling weaknessHantec Markets
The US dollar is performing strongly once more, but is this underlying strength of the greenback or simply due to weakness elsewhere? We consider the outlook for forex, equities and commodities markets this week.
The magnificent 7 and equity markets review 11Markets Beyond
2011 was a bumby year for financial markets and 2012 will be no less hectic. However the US economic picture is improving and as written in early 2011 no double dip to be expected but for FED policy folly.
Global imbalances remain, but the eurozone is where lies the deepest problems which have not been properly addressed.
Remain invested in high yielding equities / net cash companies with a strong franchise and look at strong brands in fast growing economies; stay clear from the bond market and financials.
1. 1
October Newsletter 10 26 2014 by Laura Gross
The Fall Arrives
There seem to be more explanations for the equity market’s recentvolatility and
mid-October fall-off from September highs than can possibly beenumerated.
Here are some of the mostpopular which, taken together with the short-but-
sharp stampedeof investor pessimism they engendered, may constitute the most
likely.1
It’s October, historically a brutaltime for the market. It’s Ebola, a terrible disease
and with its even-so-far-limited geographic dispersal, a frightening development
that has incited a frenzy of uncertainty around the world. It’s the end of easy
money with the Federal Reserve Board expected to stop bond-buying atthe end
of the month and raise interest rates next year. The global economy is not
growing as strongly as previously forecast, with the international Monetary Fund
(IMF) dropping its outlook for world growth by 0.1% to 3.3% for this year and
0.2% to 3.8% for next, despite modestto moderate growth in the U.S. and U.K.
The IMF said global growth faces a “new mediocre” if bold steps are not taken to
stimulate economies rather than focus on budget-tightening, particularly in the
eurozone. The eurozoneis at risk of recession and possibledeflation on a
slowdown in its German industrialpowerhousewhoseleadership continues to
2. 2
back fiscal prudenceover monetary stimulus, despite faltering demand for its
own exports fromstill-struggling neighbors and formerly high-growth emerging
markets. These include China, Brazil, which entered recession in the firsthalf of
the year, and Russia, whoseconflict with the Ukrainehas prompted sanctions that
have hurttrade with Germany. On top of flat growth and ongoing high
unemployment, eurozoneinflation in September was 0.3%, thelowest in nearly
five years. Although the European Central Bank is doing what it can, it is
constrained by the area’s structuralissues and political differences, which has
dented confidence by somein its ability to staveoff a 1990’s Japan-likeslideinto
deflation. Even Greece came back to the world stage in the last month with
political uncertainty and bond yields justshy of 9%.2-16
Weakness abroad forced the U.S. dollar up to levels someconsider too high and,
along with a glut of oil that OPEC seems unwilling to staunch, pushed the price of
oil down to what someconsider too low, which, if it continues falling, may
pressurethe profitability of U.S. shaleoil producers. China, the world’s largest
buyer of commodities and second largesteconomy, continues to strugglewith its
conversion froman export-driven to a domestically consumption-driven
economy, with someeconomists expecting that it may sputter shortof its 7.5%
growth target this year, potentially depressing demand for imports from abroad.
3. 3
Japan, the world’s third largesteconomy, contracted 7.1% in the second quarter
after a consumption tax increase and its central bank downgraded growth
prospects while continuing monetary stimulus with the economy in a “moderate
recovery trend.”17-27
Deflationary pressures havebeen bubbling up all over the world. Prices of
industrial commodities have fallen on weakening global demand while food prices
have fallen on stellar harvests. Theprice of oil has fallen by 25% since June. U.K.
inflation surprisingly tumbled to its lowestlevel in five years. China’s consumer
inflation is the lowestsince January 2010. Prices in Israeland Sweden are falling.
The U.S. and U.K., brighter spots amid the recent gloom, are fearful of catching
as-yet-nonexistentdeflation from the eurozoneand elsewhere.28-31
Then, there are the multitude of political strains and conflicts. Russia and the
Ukraine are still fighting and political tensions between Russia and the West are
high. ISISis battling through Iraq and Syria on the ground; the U.S. is striking Iraq
and Syria fromthe air. Other conflicts continue throughoutthe Middle East. Pro-
democracy students in Hong Kong are protesting and anti-democracy protestors
are fighting back.
4. 4
Sometimes the simplestexplanation makes the mostsense. Perhaps it’s justtime
for that much-anticipated 10%-20%correction, which if it is, many investors
welcome as a healthy development in the midst of whatthey see as a still-strong
secular bull marketwith many moreyears to run, one that many still forecastwill
finish the year above 2000.4, 32-35
Rocktober!
Although stocks werealready volatile coming into October, finishing the third
quarter up, but September down, the first two and a half trading weeks of the
month were like a roller coaster ride. The Dow Jones IndustrialAveragepitched
up and down by triple-digits, intraday and day-to-day, and the S&P 500 behaved
similarly as the optimistic forces for good U.S. economic and earnings growth
battled with those focused on the end of easy money, Ebola, deflation, conflicts
abroad and slowing global growth. Energy stocks fell on the decline in oil and
fears about global growth. Airline stocks dropped on concerns about Ebola. Some
investors wereforced to sell long positions to cover soured short bets.36-40
Stocks haven’tseen this kind of volatility since August2011, in the midst of the
eurozonesovereign debt crisis, when Standard & Poor’s downgraded thenation’s
credit rating a notch to AA+ fromAAA which preceded the 19.4% correction in the
5. 5
S&P 500 that bottomed in early October 2011. As wehave noted for some time,
three years is far longer than the typical 18 month averagefor declines of 10% or
more. The good news, according to Sam Stovall, Chief Equity Strategist at S&P
Capital IQ, is that in the 19 such drops of 10%-20% sinceWorld War II, theS&P
500 has only taken an averageof four months to bounce back to break-even. He
notes that the best three quarters for the marketare the ones immediately after
the worsttwo.41-43
WhipsawWednesday
Itall seemed to come to a head on Wednesday, October 15, when surprisedrops
in U.S. retail sales, producer prices and the New York Fed’s Empire State
Manufacturing Survey combined with other concerns roiling the markets to
producethe highest-volumeday ever for U.S. governmentdebt and the highest
for equities since 2011. High-frequency traders, hedgefunds, short-termbond
investors and others who justa month earlier had positioned themselves for the
possibility of higher oil prices, higher bond prices and an earlier-than-expected
interest rate hike fromthe Fed on solidly good news fromthe U.S. economy
found themselves wrong-footed in the face of U.S. and global economic news that
no longer seemed to them as supportiveof those views. All the gloom since the
6. 6
end of September about slowing global growth set many investors back on their
heels, causing them to reallocate assets to reflect a new perspectiveand
reposition projections for when the Fed might raiseinterest rates by lengthening
the timeline fromthe middle of next year to the end of the year. Their actions in
both the stock and bond markets, along with a flight to the relative safety of U.S.
Treasurys fromabroad, pushed thebenchmark 10-year Treasury bond into an
historic 34 basis point free-fall fromits 2.2% closethe day before to below 1.9% in
justsix minutes after the Treasury marketopened. Then, it bounced back in just
15 minutes to trade above 2%, again. The Chicago Board Options Exchange
Volatility Index, VIX, which projects themarket's expectation of volatility for the
next 30 days and is used as an measureof investor fear, reached over 30 for the
firsttime since 2011, stillvery far fromits over-80 record reached in November
2008 at the height of the financial crisis. The Dow fell 460 points that afternoon,
before regaining most of that and, the next day, gained 263 points to close the
week off 5.2% fromits September record high and down 1% for the year. The S&P
500 traded in a range of 57 points during the day, the widest since August2011
and, although it fell to an intraday low of 1820.66, 9.8%below its record intraday
high of 2019.26on September 19, almost marking a correction, it only fell a total
of 7.4% on a closing basis from September 18 to October 15 and ended the week
7. 7
on October 17 at 1,886.76, down 6.2% from its record high, and still up 2% for the
year. Through the tumult, the Dow fell about 6.7% from closing peak to closing
trough, the Nasdaq, 8.3% and the Russell2000, which wound up having its best
week in 14 years as of October 17, 13%.4, 44-59
Markets Repriced
The stabilization of equity markets on October 16 and gains on October 17 caused
some market-watchers to note that the “buy-the-dip” mentality that has
characterized this bull market since 2009 is still in vogue. The gains, which
continued into the next week, came on a combination of mostly better-than-
expected U.S. earnings and economic data coupled with remarks fromcentral
bankers in England, China, the eurozoneand Japan that produced hopes they
would provide moreeconomic support.60-62
On October 16, St. Louis FederalReserve president, James Bullard, may have put a
floor under markets when he said on a television interview that, given the Fed has
“to make surethat inflation expectations remain near our target…” a reasonable
responsewould be to… “pauseon the taper (of bond purchases) atthis juncture,
and wait until wesee how the data shakes out in December." The prior weekend,
Fed Vice Chairman, Stanley Fischer said in the keynote address to the IMF/World
8. 8
Bank annualmeeting in Washington, "If foreign growth is weaker than
anticipated, the consequences for the U.S. economy could lead the Fed to remove
accommodation more slowly than otherwise." TheFed meets next October 28-29
after we go to press. Ithas been expected to end its bond buying at that time but
has emphasized that its actions are data-dependent. Whether new developments
causethem to change their outlook or actions remains to be seen. Many market
watchers do not believe they will extend bond purchases pastOctober, and if
they do, will only shiftpart of their last scheduled $15 million forward. Unlikelast
month, there is less chatter about them being likely to changeguidance that
states they expect to begin raising interest rates “a considerabletime” after bond
buying ends.63-65
Also on October 17, the Bank of England’s chief economist said that they may
need to keep interest rates lower for longer than previously thought. In addition,
China, in advanceof releasing data on October 21 that showed a third quarter
growth rate of 7.3%, theslowestin five years, announced it would inject $32.6
billion into 20 large banks to stimulate stronger growth. Perhaps most
importantly, a member of the European Central Bank’s executive Board
announced the ECB would, within days, startbuying asset-backed securities and
covered bank bonds, which it began doing on Monday, October 20. He also
9. 9
soothed markets by stating that the ECB expects positive eurozonegrowth in the
third and fourth quarter along with a gradual risein inflation expectations.
Further buoying markets on October 20 was an unconfirmed rumor that the ECB
also may soon begin buying corporatebonds, and, on October 19, Japan’s prime
minister hinted that he may delay a planned hike in the nation’s consumption tax
from8% to 10% if it might damage the economy.66-73
After the Fall
According to S&P Capital IQ, the market’s gyrations through October 17 left the
S&P 500 at what may be a reasonablevalue of 15.1 times expected earnings,
compared with the averageof 16.4 times forward earnings since2001. Third
quarter corporate earnings and revenues are coming in better than expectations
for 6.9% growth in earnings on 4.1% growth in revenues. The U.S. economy,
which surged 4.6% in the second quarter, after contracting 2.1% over the winter,
is still forecastto grow 3% or more for the year and economists hope wages will
finally begin to rise, with unemploymentdown to 5.9%, jobs being created at a
rate of 200,000 or morea month and weekly jobless claims at a 14-year low.74-82
Supporting marketgains into the next week, September industrialproduction
showed a better-than-expected gain and the averagefor a 30-year fixed-rate
10. 10
mortgage declined below 4% to 3.92%, thelowest since June 2013. TheUniversity
of Michigan’s preliminary consumer sentiment index for October, an indicator of
consumer willingness to spend, jumped to a seven-year high, possibly reflecting
the strengthening job market and the impact of lower gasoline prices that have
dropped below $3 in some parts of the country, the sunny side of oil prices at
four-year lows. September housing starts rose6.3% and building permits for
future construction increased 1.5%, both at annualized rates of over 1 million,
which may point to continued growth in the sector. September existing home
sales hit the highestlevel of the year, up 2.4% fromAugustfor the fifth increasein
six months, and, although sales of new single-family homes, which accountfor
about 8% of the housing market, reached a six-year high in September, August's
sales were revised sharply downward, making for a still-mixed housing picture.
The Fed’s latest “Beige Book” survey of economic conditions in its 12 districts
released into the market turmoil on the afternoon of October 15 found continued
“modestto moderate” growth in 11 of 12. Consumer priceinflation has remained
tame but not deflationary.83-90
Best House onthe Block
11. 11
Slower growth abroad may eventually dent profits of thosemultinationals which
sourcesubstantialrevenues from their overseas activities, but the U.S. relies far
more on consumer spending, which accounts for 70% of GDP, than exports, which
account for only 14%, and thoseto Europe, only 15% of that. Optimistic
strategists believe that the world’s problems arenot enough to interrupt a
strengthening U.S. job marketthat, along with years of deleveraging by
consumers and businesses, stronger consumer confidence, lower mortgagerates
and lower food, gas and fuel prices, are likely to put more money in consumers’
pockets that they can spend to further economic growth.29, 91-96
On October 23 and 24, markets rallied on better-than-expected earnings from
U.S. multinational industrials, a gain in the ConferenceBoard’s leading economic
indicators pointing to growth for the remainder of the year and upticks in euro
area business activity and China manufacturing. Along with positive sentiment
expressed by central bankers during the recent market turmoil, this seems to
have, at least for the moment, placated the edgiest concerns about the impact of
global growth on the U.S. economy and company profits. The VIX “fear gauge” fell
to 16.22, justover half of its October 15th
31.06 intraday high for the year and a
level that may correspond to less near-term market volatility. News of the fatal
terror-related shooting of a Canadian soldier in Ottawa on the 22nd
and a report
12. 12
that a doctor in New York was being tested for Ebola on the 23rd
may have
moderated weekly gains, but it was still the best week for the S&P 500 since
January 2013. After falling for four straightweeks, the S&P 500 surged 4.1%. The
Dow gained 2.6%, the mostsince last December and the Nasdaq jumped 5.3%, its
largest percentage gain since December of 2011. As wewrite to you on October
26, the dust has settled, at least for the moment, with all three indexes less than
3% fromtheir September highs and all up for the year.97-100
Tricks or Treats
Given the market’s recent propensity for extreme reactivity, large daily swings
may continue. October may still hold somelate-month tricks or treats associated
with upcoming U.S. economic news on the 29th
, 30th
and 31st
. Theseinclude
results of the Fed’s October 28-29 meeting; the firstestimate of third quarter GDP
growth; personalincome and outlays, including the Fed’s preferred measureof
inflation, durable goods orders and the University of Michigan’s second October
consumer sentiment reading. There may be market-moving news fromabroad, as
well.101-102
If the economy continues to improve, earnings and the equity marketmay
continue to improvewith it, despite the potential for continued disruptions from
13. 13
abroad and for increasing volatility as the Fed moves away fromits historically
accommodative monetary policy. While someanalysts think the long-awaited
correction has come and gone, others say it has yet to come. Regardless of
whether it has or hasn’t, many bullish strategists believe that the strong dollar will
continue attracting investors fromabroad and stock buybacks, about25% of
which occur in November, the third best month for stocks since 1950, and
December, the best, may continue to bolster stock prices into year-end, making
for what may provide investors with a very happy holiday season.34, 103-108