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

mercoledì 19 settembre 2012

Market Comment - September 19

(Marco Bonelli) Sentiment should help the market move 5 to 10% higher!

Three days after the Fed's QE3 announcement, consensus sentiment appears to be cautious short-term but positive long-term, thanks the open-ended liquidity injection. "Are stocks setting up for a big pull-back?"; "Time to go short"; "...near-term correction wouldn't be surprising after the big run..." have been standard comments in the past couple of trading session.

General skepticism about the efficacy of QE, concerns about inflation, reference to the variety of headwinds from the global macro-economic front and the recent multiple expansion in the stock market are the reasons cited for most of the negative calls. Even a lot of bullish strategists think that stocks are overdone at current levels and need to pull back first. Finally, many market players like to dig in the past and every day you see charts pointing out similarities of recent bull and bear markets, election years, reactions to monetary policy announcements etc. and it happened to be that the market saw an almost 5% sell-the-news pull back after the QE2 announcement on November 4, 2010.

The reason why sentiment as a contrarian driver might work is that the fundamental picture gets defined as status-quo and "known" while hopes for a general recovery and improvement in certain areas fly high, all courtesy to the magic QE operation!
While the (global) manufacturing sector operates in contraction territory, the service sector has held up relatively well. Consumer spending and retail sales saw improvement since July, the back-to-school season turned out to be decent and retailers are optimistic in regard of the holiday season. The housing sector is perceived as being on a road of gradual but steady recovery (even if housing starts for August were reported below expectations), property prices are slowly recovering and the NAHB Housing Market Index reached the highest level since June 2006 (with single family sales above 50 the first time since the housing bubble burst). On top of that, every better than expected economic number will be a double-positive as it would confirm a recovery scenario in combination with monetary stimulus! China's economy is also expected to recover; the recently announced $150Bln infra-structure stimulus program gives reason for hope for more stimulus announcements and even the stock-market may have entered a phase of stabilization after a steady decline to 3 ½ year lows since May. Lastly, Q2 and Q3 earnings have been a hot topic for some time. Q2 earnings barely grew and negative preannouncements for Q3 reached a multi-year high, with earnings growth expected to be a negative 1.8% (-5.0% ex financials). With large revisions to the downside since June and INTC, FDX and some others already out with warnings, the Q3 reporting season may initially leave a positive impressions. Earnings might get reported better than expected, assuring investors that Q2/Q3 may be the trough in earnings growth.

So the current rally may continue another 5 to 10% until the middle of October! The Dow Jones trades 4.9% below all-time highs (14198), the SPX 7.8% below (1576). All but the Value Line Index already broke above the highs from March/April this year, which leaves the upside for the Nasdaq "open-ended" (talking about breaking the all-time highs from 2000 would be a bit too exaggerated!). Breaking out to new highs and approaching the 2009 uptrend lines (1600 in the SPX and 3400 in the Nasdaq Composite) could be a possible target. Many sectors in the technology (semiconductors, networking, storage), capital goods and energy sector (oilservice, E&P, multinationals) have room to move higher before they run into resistance levels; the financial sector also has plenty of upside before it reaches the upper end of the broad 3 ½ years trading range and consumer and retail stocks are trading at all-time highs anyway!

Why middle of October? Investors will realize that 4Q12 and 1Q13 earnings estimates are too high; they may get confronted with bad news out of Europe (Spain requesting a bail-out will turn out to be a big negative!); the global economy doesn't show clear signs of recovery which will leave economic growth in the US at very low levels; and as a result stock and commodity prices may have reached levels that are far away from fundamental reality.

Nevertheless, traders may get rewarded playing long positions in the mentioned sectors while investors should hold on to their existing holding, maybe adding a bit before taking profits and reducing risk when sentiment and expectations become too exuberant!

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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