(Marco Bonelli) It looks like many investors prefer being stuck in the past instead of looking forward to the future...
...and why this sentiment will be the driving force for higher stock prices!
Are concerns about high deposits at the ECB valid? The concerns are certainly valid, but... the inter-bank market in Europe is kind of frozen for quite some time and banks frequently went to the ECB to address their funding needs. On the flip-side, the ECB and other central banks (including the Fed) aggressively provide liquidity to the financial system, so the concern about high deposits is neither new nor a severe short-term threat.
Are concerns about high bond yields in Europe valid? Once again, the concerns are valid, but... several European countries get their auctions done and with that are able to address their funding needs, so right now, high interest rates more reflect the fact that there are still a lot of unresolved issues but also here, the concern is neither new, nor does it (probably) point to any severe short-term threat.
Are concerns about a sharply deteriorating Euro valid? Probably not! Given all developments in Europe it was always surprising to me how well the currency held. Now, as the ECB stepped on the gas-pedal with its (no-official)-QE operations and (no-official)-printing money policy and given the central bank lowering interest rates amid an overall weak economic outlook for the Eurozone, a weak currency shouldn't be any surprise. Down the road it will even help all export-oriented countries to grow out of the recession-like environment.
With the US Dollar approaching its highs from January this year (with the DXY well above the 80 level), the only valid development yesterday was the weakness in commodities due to their Dollar denomination. The commodity rally between December 19 and 27 was obviously more a reflection of a better economic outlook and the resulting rally in stocks but simple math and a not so bright outlook for the global economy put a cap on the recent advances.
One of the most interesting and also surprising actualities these days is that investor's sentiment appears to be cautious and even negative!
Almost all comments and forecasts in regard of next year mention a re-emergence of all negative events and uncertainties from this year that will cause high volatility and limited to no upside, maybe some improvement in the second half of 2012. Short-term speaking, comments like "...will we hold...", "...is Santa losing his 'mojo'..." and "...Santa rally slump..." already reflect lack of confidence, disbelieve and hesitance among investors. You add a trading day like yesterday that saw the Dow Jones Industrial and Transportation pull back from their 5-month closing highs, the SPX again fall below its 200day MA and into negative territory year-to-date and the Nasdaq Composite and NDX break their 50day and 200day MA, respectively, the cautious and even negative sentiment find some soothing support. And look at the VIX that bounced off the 20 level and rises towards 25, it was so obvious that the 4-day Santa rally will run out of steam, right?
This sentiment and sharply reduced Q4 earnings estimates that now might turn out to be conservative and produce positive earnings surprises in the upcoming reporting season will be the main driver for a powerful rally in the first quarter of 2012!
Trade well and (as this will be the last market comment in 2011), have a happy new year 2012!
(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own)
Dear Marco, I have been reading your market comment for some days and I found it very interesting. I hope you will continue in 2012. Thank you and happy new year 2012!
RispondiEliminamarco mugnaini