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PM Bulletin: Gold
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PM Bulletin: BOJ in focus
28 Jan 2016
AM Bulletin: FOMC disappoints, but earnings offer support
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AM Bulletin: Crude still driving equities
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PM Bulletin: Tomorrow’s FOMC meeting
26 Jan 2016
AM Bulletin: Equities slide on crude sell-off
26 Jan 2016
PM Bulletin: Silver chart
25 Jan 2016
Weekly Bulletin: Promise of further stimulus halts equity slide
25 Jan 2016
PM Bulletin: EURUSD chart
22 Jan 2016
AM Bulletin: Equities rally on ECB and oil
22 Jan 2016
PM Bulletin: Dovish Draghi triggers euro sell-off
21 Jan 2016
AM Bulletin: ECB meeting in focus
21 Jan 2016
PM Bulletin: Crude makes fresh multi-year lows
20 Jan 2016
AM Bulletin: Stocks slide as oil slumps
20 Jan 2016
PM Bulletin: Bank of Canada rate decision
19 Jan 2016
AM Bulletin: Equities surge on relief rally
19 Jan 2016
PM Bulletin: Crude oil - long-term charts
18 Jan 2016
Weekly Bulletin: China and oil weigh on equities
18 Jan 2016
PM Bulletin: Long-term gold bullion chart
15 Jan 2016
AM Bulletin: More woe from China
15 Jan 2016
Holiday Schedule: Martin Luther King Day Monday 18th January 2016
14 Jan 2016
PM Bulletin: Equities: bull or bear?
14 Jan 2016
AM Bulletin: Investors remain jittery
14 Jan 2016
PM Bulletin: The Bank’s rate decision
13 Jan 2016
AM Bulletin: Oil rebound lifts stocks
13 Jan 2016
PM Bulletin: Saudi Aramco’s IPO
12 Jan 2016
AM Bulletin: Crude closes in on $30
12 Jan 2016
PM Bulletin: US Fourth Quarter Earnings Season
11 Jan 2016
Weekly Bulletin: 2016: Trouble ahead?
11 Jan 2016
January: Non Farm Payrolls Out Today
08 Jan 2016
PM Bulletin: Another blow-out payroll number
08 Jan 2016
AM Bulletin: China effect calms markets
08 Jan 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jan 2016
AM Bulletin: Equities slump after 2nd China trading halt
07 Jan 2016
AM Bulletin: Investors remain jittery
06 Jan 2016
AM Bulletin: China steadies and Europe rallies
05 Jan 2016
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04 Jan 2016
 
 
 Thursday 14 January 2016

PM Bulletin: Equities: bull or bear?

 

 

This continues to be a truly horrible start to the new calendar year. Last week saw a number of major global stock indices post their worst first trading week for decades, or in the case of the S&P500, its worst start ever. This follows on from a disappointing year-end when a much hoped-for Santa Rally in equities failed to materialise.

But the big question is “what now”? Should investors “sell (mostly) everything” which was the key message from the note from RBS earlier this week, or sit out what could prove to be a healthy market correction which will soon work itself out?

Looking at the charts of the Dow and S&P500, there are some worrying signs. Both of these major indices appear to be “rolling over” in terms of their trading patterns. Both made fresh all-time highs at the beginning of last summer. Then we had the Chinese stock market melt-down which led to a correction of around 15% in both.  The US equity market subsequently recovered and the major indices just fell short of making fresh record highs by only 1% or so. But since November we’ve seen a succession of lower highs and lower lows. Now it looks as if history is repeating itself with another China-inspired round of blood-letting. The Shanghai Composite is hovering around 3,000 – near its August post- melt down lows and the Dow and S&P have reacted accordingly.

Back in September equities staged a recovery which coincided with the US earnings season. Yet second quarter corporate earnings were better than expected, but were hardly stellar. Instead it was the fact that the Federal Reserve held back from hiking rates citing uncertainty in global markets which boosted equities. So this time round things are different. The Fed has already hiked rates with the prediction of further tightening to come. Fourth quarter earnings may offer a glimmer of hope, but we’ll need to hear Fed members back-tracking on the prospect of higher rates for markets to get a lift.

There are other headwinds to face as well. The relentless sell-off in crude is putting considerable pressure on high yield (junk) bonds. Concerns are growing that a wave of shale oil related bankruptcies is on its way. Continued dollar strength is hurting US multinationals both in terms of overseas revenues and earnings. It also hits emerging markets who hold large amounts of dollar-denominated debt. In addition there are fears that China will be unable to manage an orderly devaluation of the yuan – something it desperately needs in order to boost its export market – and prevent capital flight. Also, a weaker yuan means exporting deflation to the rest of the world.

But often a “wall of worry” is just what is needed to galvanise the markets. There’s no doubt investors are feeling pessimistic and this is could lead to a big reversal. It’s worth remembering that for six years now every significant market sell-off has been countered by central bank intervention, and that expectation is firmly embedded in the psyche of most market participants.

Nevertheless, although this may not be a repeat of 2008 as some analysts are suggesting, the time to concentrate on the “return of capital” rather than the “return on capital” may be approaching. Price action should be watched closely to identify when it’s time to sell the rallies rather than recklessly buying the dips. 

Disclaimer:
Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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