Il Primo Ministro greco Lucas Papademos riceve l'approvazione del governo su tagli al bilancio che corrispondono al 7% del Pil nei prossimi tre anni e su una ristrutturazione finalizzata a ridurre di €100 mld gli oltre €200 mld di debito detenuto dai creditori privati, atteso il voto del parlamento • Standard & Poor's declassa il merito creditizio di 34 banche italiane tra cui UniCredit a BBB+ da A, Intesa Sanpaolo a BBB+ da A e Banca Monte dei Paschi di Siena a BBB da BBB+, S&P anticipa "una redditività decisamente debole per le banche italiane nei prossimi anni" • La produzione industriale italiana aumenta a dicembre +1,4% da novembre +0,3%, oltre le stime degli economisti +0,5%, anche se i dati del quarto trimestre -2,1% suggeriscono che la terza economia della zona euro è entrata nella seconda recessione dal 2009 • I Btp decennali salgono per la quinta settimana consecutiva, il periodo di recupero più lungo in oltre cinque anni, la prossima settimana il Tesoro vende €4 mld di buoni al 6% con scadenza 2014 • L'euro cala dal massimo di due mesi contro il dollaro, il mercato azionario europeo cala dal massimo di sei settimane e l'azionario Usa registra la prima settimana di perdite del 2012 dopo che i ministri delle finanze europee non hanno concesso il pacchetto di aiuto necessario a prevenire il collasso economico della Grecia

martedì 31 luglio 2012

Market Comment - July 31

(Marco Bonelli) Isn't it convenient that everybody knows what the Fed will do?

"Fed seen forgoing asset purchases until $600 Billion September bond buying" (as displayed among the top business news on Bloomberg) just summarizes what obviously the majority of economists, strategists, Fed watchers, market participants and investment gurus expect from the FOMC Meeting that started today - and this doesn't even acknowledge the omniscient journalists that make it easy for investors to objectively weigh the options and make an intelligent investment decision. As everything is already well-known, this week shouldn't reveal any big surprises, right?

Still, besides desperately waiting for the announcement that everybody already knows (does that make sense?) what should investors do?

Ø  A general look at the fundamentals doesn't reveal too much encouraging developments: Q2 earnings growth at -0.4% (after 60% of SPX companies reported) and Q3 earnings is expected to be negative (on back of the worst profit outlook companies provided since 2001); Q2 GDP at 1.5%, a steady deceleration from the peak in Q4; manufacturing slowing sharply; the latest data on housing kind of sluggish; private consumption and personal spending almost not existent (personal spending grew 0.03% per month in Q2 while advanced retail sales declined 0.4% per month in the same time frame) and global growth doesn't show sign of stabilization.

Ø  Then you can look at the technical picture and get excited that the Dow Jones and SPX broke above all moving averages and trade close to their highs from March and April. Most other major indexes display a slightly different picture as they trade at or even below their 100day MA. The Nasdaq Composite, Russell 2000 and S&P 400 Mid-cap even show lower highs after each rebound in July (a pattern, which is also present in the Dow Jones Transportation Index), demonstrating the relative under-performance of small and mid-cap stocks in general. So looking at the Dow and SPX you might want to bank on the level above 13000 in the Dow and play for a run to 1400 in the SPX but the other indexes show that the next move could go anywhere. And when you follow the Value Line Index, you might not even be that encouraged as long as the index trades below its 200day MA.

Ø  Finally, there is the seasonal pattern. Sure, today is the last day of the month and often the first day or two of a new month turns out to be decent. However the first nice trading days in August have a tendency of being weak historically (according to the Stock Trader's Almanac) and although you sometimes see a weak summer rally, the month usually turns out to be choppy, only lifted by better performance in election years and that could be the wild-card: So far, this year's market performance closely followed the trading pattern of election years from the past 100 years. Going forward, this pattern suggests a summer rally until beginning of September, weak markets until middle of October followed by the traditional year-end rally.

With little substance backing convincing investment decisions to buy, it is no secret that the market has been lifted by high expectations for further asset purchases by central banks around the globe in June, July but also earlier in the year, in the latter part of the rally in Q1. Defining consensus expectations as zero for QE3 and with that, maybe even expecting no reaction in the market if we don't see any announcement from the Fed (and even worse, the ECB) is flat-out ridiculous and can only be called dangerous complacency! Considering the opposite, if the Fed and the ECB decide to open the flood-gates, the "surprise" will certainly be overwhelming and will elevate prices accordingly. Either way, the way to make investment decisions in this environment is quite scary.

Trade well.

(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own.)

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