The financial crisis has passed for four years. While many people are still staying away from equity stock market, it has slowly recovered back to the level before the financial meltdown in 2008. During this recovery period, the economic growth is only mild but the stock market rebounds strongly back to pre-crisis level. Therefore many investors does not believe that market can sustain at current level and remain on the sideline with cash.
Stock market capitalization has almost recovered the value before the financial crisis. Economic activities in monetary term shrinks because the population is more cautious on spending due to uncertain economic environment thus fear on income stability. This explains the pessimism of individuals in the financial market which triggers the collapse of financial assets. The confidence in financial assets would not be restored until job growth resumes to the level when economic activities is growing at the rate before the financial crisis.
The financial crisis froze capital liquidity suddenly. The consequence is that both individuals and corporations are now very cautious on financial management and thus constrains economic activities. But as technology and innovation drives the economy on the whole, increase in productivity results in more wealth generation. As a result, although economic activity stalls, it generates wealth at record amount. Unfortunately, income inequality and concentration of wealth leads to uneven distribution. The rich gets richer while the poor gets poorer. Since the wealthy elite constitutes only a small portion of the population, market sentiment remains weak despite record level of global wealth.
Performance of equity stock market is not as expectation of the general public. The demand for equity stocks as wealth asset is weak from households in general. On the other hand, global wealth is growing fast. Surplus capital is flooding the financial system with hot money on speculation. Smart money began to accumulate stocks of large corporations since the bottom of financial meltdown. The buying strategy for long term investment has been successful. As broad market index is approaching to all-time high level, market participants begin to worry of lagging behind with too much cash on hand. The growing amount of cash on investors hand generates upward pressure on large cap stocks with dividend.
Stay Long Stocks and Pray for a Dip: Macke
With a week left in the third quarter the bulls are winning 2012 in a blow-out. The S&P500, NASDAQ and Dow Jones Industrial Average are up more than 15%, 20% and 10% respectively. The advance is twice the gains foreseen even by the notoriously perma-bull strategist camp which was collectively looking for about a 7% gain when polled last December.
With a week left in the third quarter the bulls are winning 2012 in a blow-out. The S&P500, NASDAQ and Dow Jones Industrial Average are up more than 15%, 20% and 10% respectively. The advance is twice the gains foreseen even by the notoriously perma-bull strategist camp which was collectively looking for about a 7% gain when polled last December.
The tape has been climbing this wall of worry all year. In the attached clip my Breakout co-Host Matt Nesto says it's time for investors to come back to earth. Ticking through much of the above Nesto says he thinks the "market is weird right now and it's very difficult to invest in."
The world is lousy but not getting much worse. Fund managers are way behind and individuals have money on the sidelines and a growing sense they're missing out in equities. It's not a great bullish thesis but it's the best one we have for now. Investors should be so lucky as to get a dip.
Goldman Sachs: 'Cliff' to Hit Stocks Next Quarter
Goldman chief U.S. equity strategist David Kostin writes that the S&P 500 should fall sharply after the election when investors finally realize that there is a possibility that the so-called "fiscal cliff" will not be resolved smoothly. He says the majority of investors expect to see the fiscal cliff avoided in the lame duck session of Congress, but Goldman sees a one-in-three chance that Congress will fail to address the issue.
Kostin expects the S&P 500, starting this week at 1,460, to fall to 1,250 by year end and then rise back to be at 1,350 in 12 months. Meanwhile, many big investors lag the S&P's 18 percent advance year-to-date, with the typical levered investor seeing a return of just about 6.7 percent. Only 8 percent of hedge funds are outperforming the S&P, he notes.
When Stocks Might Hit New All-Time Highs
It's a bit of a puzzle: The U.S. economy is weak, Europe is close to a recession and there are a number of other things that could go terribly wrong. Yet stocks have been inching higher and are getting close to peaks last attained in 2007, before the Great Recession knocked them down.
So Wall Street analysts are starting to ask a daring question: What will it take for stocks to reach and exceed their prior highs?
As always, there's plenty that could disrupt this optimistic scenario. One way Washington could avert the fiscal cliff is to simply put off the day of reckoning on which tax hikes or spending cuts will go into effect. That would provide some breathing room for the economy, which may not be ready for such austerity measures. But it could also lead to further downgrades in the U.S. credit rating if there's no plan to address the mushrooming national debt.
The last time that happened, in the summer of 2011, investors shrugged it off and nothing really changed about America's ability to borrow. That could happen again. But every downgrade will bring the U.S. government closer to a crunch point at which investors may lose confidence in Uncle Sam and start to demand higher rates to loan America money. At some point, higher borrowing costs could be the thing that triggers a bona fide debt crisis.
Then there are the usual worries, such as a Middle East war involving Iran or other countries, and a chaotic breakup of the euro zone. But investors have been digesting those sorts of risks for a while, and have learned to take them in stride. There's always something that can go wrong, but you have to prepare for things going right, too.
Wall Street Is Evil Just Like You, Ex-Trader Explains How to Deal
Wall Street versus Main Street. Us versus Them. The 99% versus the 1%. The "entitled" 47% and the wealthy refusing to pay their "fair share." The 2012 election is about class warfare. Far from trying to bring the two sides together the media and politicians on both sides are fanning the flames, hoping to get another vote with every angry soundbite.
"You have to understand that on the trading floor we incentivize these people to take risk," says Terri Duhon, author of the book How the Trading Floor Really Works. What she means is that traders get paid to take risk with other people's money. That's how banks work. When the risk goes right the client makes money and shareholders cheer. When the risk goes south, it's an entirely different matter.
Honeymoon Over as Markets Brace for Volatility
The message from this week's sell off in global stock markets could not be clearer: the summer time rally, fuelled by optimism over central bank stimulus measures, is now over and it's time to brace for a period of renewed volatility and uncertainty, analysts say.
The U.S. unemployment rate, which stood at 8.1 percent in August, has remained stubbornly high and analysts say a sustained fall in the rate is one thing investors, who appear to be moving to the sidelines, will be watching out for before they move back into equities.
"There's too much uncertainty for investors at the moment so many are sitting and waiting," Jill Cuniff, Portfolio Manager at Edge Asset Management in Hong Kong told CNBC on Tuesday.
Investors Warned: Step Away From the Kool-Aid
European Central Bank (ECB) President Mario Draghi has said he will do "whatever it takes" to defend the euro and Ben Bernanke's Federal Reserve has gone to infinity and beyond in an attempt to revive the U.S. economy, but a growing number of market watchers are beginning to doubt unconventional monetary policy will actually work.
Analysts at Barclays believe the ECB and Fed are sending investors a "buy risk" signal and believe that even with stocks high, central bank action will be as well received as it was when the Fed and ECB intervened in December 2011.
"Weak but stabilizing global growth, excessive macro pessimism, light positioning, and elevated uncertainty about the policy outlook should give risky assets a boost, possibly beyond Q4," said Guillermo Felices, the head of currency strategy at Barclays said on Thursday.
Tax Cuts for the Wealthiest Don’t Stimulate the Economy: Report
In less than a week Mitt Romney and President Barack Obama will face off in the first of three debates. The focus is domestic policy, and taxes will undoubtedly be a key topic.
President Obama wants to extend the Bush-era tax cuts for all but those earning more than $250,000. Romney wants to extend those tax cuts for all including top earners, cut individual rates another 20%, and eliminate the capital gains tax, making up for all revenue losses by closing loopholes.
Both plans assume that tax cuts help boost economic growth but a new report released by the Congressional Research Service questions the impact of tax cuts for the wealthiest Americans. The nonpartisan CRS says cuts in the top marginal tax rate and top capital gains tax rate "do not appear correlated with economic growth."
The report says cutting top tax rates don't appear to boost saving, investment or productivity, or the size of the economic pie, but do seem to increase disparities in income.
S&P 500 to Hit Record High in 2013: Strategist
With three months to go in 2012, Bank of America Merrill Lynch's head of U.S. Equity and Quantitative Strategy Savita Subramanian is one of the first on Wall Street to make a call for 2013.
She's forecasting the S&P 500 (.spx) will hit a record high in the year ahead and top out at 1,600. The current all-time high for the S&P 500 was set on October 9 2007 when it hit 1,565.
In a note from the firm, she says: "our 2013 year-end target of 1,600 implies a ten percent return where most of the appreciation can be attributed to earnings growth of seven percent."
Subramanian also worries that consumer spending will drop in the fourth quarter and that the U.S. could be in for another credit downgrade.
No comments:
Post a Comment