The sudden surge in stock market is due to nervous investors replenishing the portfolio on the fear of missing a rally. Buying interest outnumbers the amount of profit taking selling. Market manipulators maintain small long positions and is looking for the next move. As market participants are still very cautious, market manipulators may not abandon the selling strategy. On the other hand, the strategy of creating market panic and to make profit on market participants to drive market further down will not work because small investors have thin portfolio and learn to wait for any dip to buy rather than to sell on fear.
Since market participants do not see another sell-off for several weeks, investor confidence increases. Institutional investors have cash on hand to increase portfolio holding as the amount of client redemption is less than previously expected. Individual investors are nervous to have sold at market bottom. Recent rally in equity stock market creates wealth for investors and increases the buying interest. Selling pressure is minimal as small investors have trimmed the portfolio to minimum since market bottom in 2009. There is some profit taking among investors that bought at the bottom. But the dip would attract small investors to replenish the portfolio. Despite the increased buying interest, market participants are still worry about panic selling initiated by market manipulators.
U.S. rating likely to be downgraded again: Merrill
The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.
The bipartisan congressional committee formed to address the deficit -- known as the "super committee" -- needs to break an impasse between Republicans and Democrats in order to reach a deal to reduce the U.S. deficit by at least $1.2 trillion by November 23.
If a majority of the 12-member committee fails to agree on a plan, $1.2 trillion in automatic spending cuts will be triggered, beginning in 2013.
U.S. Downgrade Threat Reemerges: Why the Markets Don’t Care
As telegraphed as it may have been in the 4 months leading up to this summer's debt ceiling showdown, and as ham-fisted as the message was ultimately delivered, when Standard & Poor's actually cut the AAA credit rating of the United States that hot Friday evening of August 5th, it still shocked the world.
It's not as though Fitch and Moody's haven't warned Washington that it is on an unsustainable fiscal path, or that investors haven't taken note of the fact Exxon Mobil or Microsoft are in better shape to repay debt than Uncle Sam.
So far the CDS (credit default swap) market has not paid much attention to another downgrade. The cost of insuring yourself against the risk of a U.S. default is currently hovering about 30% below the peak in August and clearly trending lower.
The irony in all of this is that the S&P's downgrade had the inverse effect on the treasury market. The yield on the 10-year note fell from about 2.5% in early August to 1.75% in late September as investors sought the unmatched safety and liquidity that only the U.S. government bond market can offer - credit rating be damned.
On a side note, the second largest shareholder of Moody's is none other than Warren Buffett, who was not only critical of the action taken by Standard & Poor's, but said he felt the "U.S. deserved a AAAA credit rating."
Here’s How This Rally Isn’t Like the 2010 Rally
Fall 2011 is starting to look eerily like a repeat of Fall 2010 — a eurozone scare sends the market into a tailspin, recession fears pop up everywhere, the Fed agrees to buy some more stuff, recession fears evaporate and the market pulls out of its dive and starts a big rebound.
And while big-cap stocks in the S&P 500 and Dow have burst out of their two-month trading range, the rest of the market has not, with the Russell 2000 and S&P mid-caps still stuck in their respective ruts.
“In other words, the equity rally still appears on the narrow side compared to prior bounces over the last few years,” Strategas analysts write.
Barton Biggs: The Good, the Bad & the Ugly in This Market
For Barton Biggs, there's a good, a bad, and an ugly part of the current market environment. This 50 year veteran of Wall Street has told his grandchildren to seek their fortunes in other ways - even though he still personally thinks "the investment business is a great game" and has no intention to retire.
The good news is things could be worse.
But the bad news is investors now face continuously agonizing tests of their convictions. The heightened volatility requires ongoing "market judgments" that must be made correctly for fund managers to outperform.
As for the ugly, he won't personally get involved in the "craziness" of leveraged and inverse ETFs.
As of Wednesday, Biggs said he raised his net long position (or stock market exposure) to 72% from 40% in September. While most would consider that a fairly bullish stance, Biggs sees it as being a "cowardly lion" and worries that if markets continue to rise he'll "have to scramble to keep up."
One thing he's not worried about is the possibility the U.S. could soon get hit with another downgrade. "Credit (ratings) agencies are a joke," he says.
Americans, Once Again, Miss Out on Stock Rally
Americans have been in full flight this year, withdrawing $84 billion from U.S. equity mutual funds through Oct. 11 versus $83 billion for all of last year, according to TrimTabs Investment Research.
Investors have lost confidence in the markets due to their volatility, but the asset drop is also driven by a move to more cash-like investments and ETFs, said Leon Mirochnik, a TrimTabs analyst. "I don't think it's a loss of confidence in fund managers, absolutely not," Mirochnik said.
And that is coincident with the first wave of baby boomers entering retirement. Most have known relatively stable and rising equities markets in their personal investment histories, so the past five years has shaken their confidence in stocks, such that they've switched to ultra-conservative investments such as cash and bonds, and they're not looking back.
There is also a major move by investors to exchange traded funds, which are cheaper to own and less volatile than stocks, and they offer the ability to buy and sell throughout the day, unlike mutual funds.
Unfortunately, if the current rally has legs, it will once again mean individual investors have missed out on big gains as they did in the big 2009 rally after the 2008 crash. The S&P 500 has soared 84% since March 2009.
Todd Rosenbluth, a mutual fund industry analyst at S&P Capital IQ, said the S&P 500's move back into positive territory this year bodes well for a sustained rally as investors tend to react to the benchmark index's moves. That could well get the investing public creeping back into stock funds.
Mirochnik said "there's still a lot of cash on the sidelines, so we could have a nice little rally in the next few months and into the first part of next year."
Believe It or Not Wall Street Doesn’t Dominate the Top 1%
It turns out the finance sector only makes up 14% of the top 1% of American earners, says this CNN Money report. Executives in other industries make up more than 30% of America's richest cohort. Medical professionals compose close to 16% and lawyers are 8% of the top 1%.
Lots of bankers, traders and hedge fund managers will still take home big six figure paychecks, but for many it will likely be less than they earned the prior year. Bonuses on Wall Street may fall as much as 40% from a year ago, reports the Wall Street Journal.
Don't expect any tears to be shed on their behalf. "Everyone is above average," Michelle Leader of footnoted.com tells Daniel Gross in the accompanying interview, referring to the huge sums of money still made on Wall Street. The average salary financial services employee in 2009 was $311,000, according to New York's Comptroller's office. Meanwhile, Leder says, even if the rank and file may earn less this year she's not expecting the top earners of CEO's of the major banks to take a big hit.
In Cautious Times, Banks Flooded With Cash
Bankers have an odd-sounding problem these days: they are awash in cash.
Droves of consumers and businesses unnerved by the lurching markets have been taking their money out of risky investments and socking it away in bank accounts, where it does little to stimulate the economy.
Before the financial crisis, banks were desperately scrambling for deposits, offering free iPods and interest rates averaging more than 3 percent. New branches sprouted up to gather that cash.
The banks that survived were flooded with cash as depositors flocked to the relative safety of government-insured accounts. The average one-year C.D. rate today is less than 0.4 percent, according to Bankrate.com.
Even as interest rates have fallen, bank deposits have grown at an impressive clip of almost 5 percent a year, according to Trepp, a financial research firm. This summer, as businesses and consumers withdrew their money from stocks, bonds and money market mutual funds because of fears about the debt crisis in Europe and another downturn in the United States, deposits surged to a record level of more than $8.9 trillion.
No comments:
Post a Comment