There are much less panic selling in this year. Market manipulators use the European sovereign debt crisis to drag down market. But the drop is much smaller in comparison with the case of US rating downgrade in last year. There are much fewer panic investors dumping the portfolio and in less quantity. Market participants have less weighting in equity stocks. And some investors may have learned the trick of market manipulators to profit from panic sell-off.
There are several major sell-offs in the recent years. Each subsequent sell-off is smaller in scale than the previous one. Investors trimmed the portfolio most severely during the market meltdown in 2009. Most market participants did not replenish the portfolio in the aftermath due to fear and lack of confidence. The US rating downgrade in last year ignited another round of panic selling. Before the sell-off, investors were slowly adding positions to the portfolio on hope of economic recovery. But the panic sell-off caused investors to trim the portfolio further. Since market participants had a smaller portfolio in stock equities and less households participated in stock trading, the sell-off was less severe than the 2009 crash. Some pessimistic investors were afraid of another crash like 2009 and stayed with cash to wait for 2009 bottom. Although market fell hard, it got support from long term investors well above the 2009 bottom. Disappointed market participants could not buy shares at the desired low price.
While market participants remain pessimistic, market continues to climb on a wall of worry. When market set year high, market manipulators attempted to initiate sell-off again using the European debt fear. Profit taking from investors sent stocks down. Most market participants had thin portfolio in stocks but plenty of cash. Therefore investors are reluctant to sell and the sell-off duration was shorter than earlier events. Market manipulators and day traders made much less profit than during the US rating downgrade sell-off.
Market moves and repeats in cycles. Market participants have experienced several sell-offs after the 2009 market crash. Although market participants have little confidence in equity stocks, the financial market is recovering from the frozen condition after the collapse of Lehman Brothers. Economic activities have created wealth and the supply and circulation of money have improved significantly from the trough in 2009 meltdown. However, individuals are cautious on risk assets and banks are tightening the credit facility. Small businesses still have difficulties to operate and expand the business. Current equity stock market is unattractive to many individual investors. Institutional investors begin to see inflow of capital because market goes higher and attracts investors with risk appetite. There are diverse factors to influence market direction. For speculative trading, short term movement is artificially manipulated through capital flow. Market manipulators and traders have a leading role in driving the herd of market participants. An accurate and timely analysis of market mechanism would be helpful in making correct investment decision.
Cramer Explains What's Sending Stocks Higher
Although the S&P 500 snapped its six-day winning streak Monday, Jim Cramer noted that stocks have largely been able to push higher despite an array of economic concerns, including weak commodity and shipping numbers.
First, Cramer argued that people invest in companies, not commodities, and many companies are making a lot of money right now.
Second, he said investors want to see companies' profits - not revenues - push higher because greater profits produce greater dividends.
Third, he pointed out that the economy is largely dependent on the condition of the housing market.
To Cramer, economic indicators like commodity prices or freight rates are only obscuring the earnings and dividends that are actually propelling stocks higher right now.
Worst-Case Economic Scenarios Will Be Avoided This Year: Mark Dow
Recent weak economic data in Asia, due in large part to the slowing European economy, has heightened concerns for a looming recession in the region (and the rest of the world).
In an interview with The Daily Ticker in December, Dow predicted 2012 would not be a banner year for global growth, financial assets and commodities. Aside from stocks, which have done relatively well despite European headwinds, his forecast is on target. He also sees lots of opportunities for investors in the current market.
Whatever the outcome in Greece, fears of spiller-over effects from a potential Greek meltdown are over blown, he notes. He firmly believes there is no risk for contagion or a Lehman-like event.
"As Germany gets more involved deeper and deeper and deeper into the European problem more of the toxic assets are migrating from the balance sheet of the private to the balance sheet of the official sector," he says, adding that during the Lehman crisis in 2008 many investors and banks were long toxic assets, which led to a lot of forced selling. As a result, he says the crisis in Europe is actually bullish for stocks.
Dow's bottom line: While this year will be bad, Dow believes the worst-case scenarios will be avoided.
The Costanza Trade: Why the Market Is Irrational & What You Can Do About It
Stocks are higher by more than 10% in 2012 yet are widely reviled and distrusted by the masses. Hedge funds are up less than 3%, equity mutual fund outflows are a way of life and trading volumes are negligible. Scott Bleier of CreateCapital.com has a decent explanation for how stock indices can rally while individuals get nothing but angry.
"We are on a hamster wheel," says Bleier in the attached video. Individuals are running furiously to keep up with global news, financial scandals, and a crumbling economy. The most bullish forces are those of the Federal Reserve's invention, so the worse it gets, the more likely the Fed saves us. As a result bad news can be good and vice versa.
Bleier says the negative fundamentals are about to combine with improving sentiment to create a brutal, painful reversal in the relatively near term. Fund flows and hatred be damned, he says everybody is getting long stocks if only because they don't want to miss the party. When the momentum buying dies so does the rally.
It's not a matter of avoiding markets entirely but a warning about knowing what you're getting into when you buy. "Understand what you're dealing with," he warns. "You're dealing with artificial markets that you can make money in. It's a dichotomy."
Euro Zone Equity Markets Shrink: Time to Buy?
The size of the euro zone equity market has contracted so much that it is now smaller than the U.S. technology sector - but strategists are divided on whether this presents a buying opportunity.
After several tough years for the financial sector with bank nationalizations, and a new crop of scandals brewing, the euro zone financial sector is very cheap relative to the past decade, according to BoAML. European financial stocks are down around 80 percent from their all-time highs and trade at just half their book value. On the other hand, euro zone equities as a whole are down 56 percent from their all-time highs.
"We know that European equities should be trading at a discount, but by our calculations the relative discount has only been this high three times in the past century. We've got a systemic crisis, but we had two world wars," Richard Cookson, global chief economist at Citi Private Bank, told CNBC.
Study: Companies paid more to CEOs than in US tax
Twenty-six big U.S. companies paid their CEOs more last year than they paid the federal government in tax, according to a study released Thursday by a liberal-leaning think tank.
The study, by the Institute for Policy Studies, said the companies, including AT&T, Boeing and Citigroup, paid their CEOs an average of $20.4 million last year while paying little or no federal tax on ample profits, according to regulatory filings.
Some companies cited in the study said it was misleading. They also said they took advantage of tax deductions and credits designed to free up money for companies to spend in ways that stimulate the economy.
On average, the 26 companies generated pretax net income of more than $1 billion in the U.S., the study said.
The study, a 45-page attack on the corporate tax code, said deductions and credits are allowing companies to lavish big pay packages on executives so they can cut their tax bills while Washington gets less money in a time of trillion-plus deficits.
"Our nation's tax code has become a powerful enabler of bloated CEO pay," the study said.
The ''Worship' of Stocks Is Dead: Bill Gross
Bill Gross - reiterating his now-famous critique of equities - told CNBC that while stocks are still likely to return more than most other asset classes, they would occupy a less cherished - and lucrative - place in investors' portfolios.
Gross, Founder and Co-Chief Investment Officer of Pimco, manager of the world's largest bond fund, told CNBC's "Closing Bell" that a "30, 40, 50-year old cult" of equities returning double-digits was nearing an end.
"Equities have reached a dead end in terms of significant appreciation," Gross said. "Equities are still alive, but the cult of equities is dying."
He said investors may want to search for investments other than in stocks and bonds, such as land or other assets.
Adapt or Perish, Credit Suisse Tells Traders
Declining volumes on global stock markets appear to show that real money trading activity is at decade lows, according to a new report from Credit Suisse, and investors believe volumes will stay low for two more years unless global resolutions to the risks of the economic crisis are found.
Credit Suisse's report on trading activity shows that over the past four years, volumes in equity markets have been steadily falling and are now at half the level seen in the middle of the credit crisis - and traders fear they could get worse.
Traders needed to prepare for change as more and more investors turn to cheaper, electronic execution, the report stated. More trading institutions were looking for "quality over quantity...trimming broker lists...rather than reducing all commission spend equally" and traders needed to "adapt or perish" in order to survive.
3 Reasons Why This Rally Is Real and Will Last
A few days ago I was going through a mental exercise trying to list all the headwinds and tailwinds that this rising stock market is facing right now. I'll be honest, coming up with the cons was easy, since it is essentially a list of all the familiar spooky themes and plots. Listing positives, however, did not come easily and left me - like many - at a loss to explain why stocks have undergone this 3-month sprint.
That is not the case with Jim Paulsen though, as the Chief Investment Strategist at Wells Capital Management easily rattles of reasons we he thinks there's still plenty more room for stocks to go higher.
"This market, as a whole, is starting to suggest that this rally has more legs and sustainability than people might think," Paulsen says in the attached video. "You're seeing more and more underlying characteristics aligning with a real rally."
Such as?
The steady (and not so slow) migration out of Treasuries, Paulsen says. "Finally you're seeing people leave the bond market for the stock market to some extent," he points out, citing the move in the 10-year yield to 1.85% from 1.40% in very short order. That matters, he says because it suggests that "even the bond players are aligning for a little stronger economy, a little greater rally."
He also likes the change of leadership that has not only seen cyclicals like Tech, Materials, and Industrials starting to take the lead but has also "seen the defensives giving way," with things like Staples, Healthcare, and the Dividend Aristocrats fund rolling over.
And finally, Paulsen cites sensitivity - or the lack of it, more specifically - as another reason why this low volume summer melt-up is set to continue beyond the back-to-school sales.
Not only are markets ''less skittish'' but the Vix hasn't budged, the European Conditions Index is at its annual high reflecting none of the fears that tanked it a year ago, and the beta (or volatility) of U.S. stocks compared to Europe is down by one-third.
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