Market participants are very cautious. However since there is plenty of liquidity in the market, investors are reluctant to sell the remaining stocks in the portfolio which is already rich in cash. Therefore despite the week's loss in broad market, investors are not following the herd to sell stocks.
While market is consolidating, market participants are watching closely for further development. Long term investors attitude is critical to market movement since they may be the major sellers if confidence is weakened and decide to take profit. If market can hold on for longer time, speculators may begin to accumulate stocks on hope of improving economic condition and buying interest from surplus capital.
After QE3, Can Fed Excite Markets This Week?
Just because last month's Federal Reserve meeting came with some punch with the announcement of aggressive stimulus measures to boost the U.S. economy, does not mean this month's meeting is any less important, Fed watchers say.
"There's positive data, but the reality of the matter is - data has been very volatile. I think the Fed knows it's not a firm recovery and that doesn't provide the Fed with a lot of comfort," he said. "They will likely say they will continue with the easy monetary policy and monitor developments."
The December meeting will also follow the November 6 presidential election and that may pave the way for more clarity on how the U.S. Congress plans to deal with the 'fiscal cliff' of tax hikes and spending cuts that are due to kick in in January.
The U.S. Congressional Budget Office and the IMF have said that if the fiscal tightening that is due to take place goes ahead without action from Congress, the U.S. economy will probably fall into recession. Economists peg the damage from the impending fiscal tightening as high as $720 billion, which will wipe off 4.6 percent from gross domestic product (GDP), effectively pushing the U.S into recession.
"The December (Fed) meeting may be more interesting, given the fiscal cliff," AMP's Oliver.
On Wall Street, Selling Fear Is Good Business
Years of financial tumult have given brokers a new and resonant sales message: "Be afraid." Whether it's good investment advice is almost beside the point — the financial-services industry has determined that fear sells:
There's nothing mysterious about how things arrived at this point. By their words and actions, individuals have shown an abiding disdain for the stock market.
Easily the most successful new class of tradable instruments in recent years has been exchange-listed notes tied to the options market's S&P 500 Volatility Index, or VIX. Such products have attracted billions in assets from investors seeking a way to profit from violent, dangerous market action despite a generally steady decline in actual market volatility since the 2008-'09 crescendo of the financial crisis.
For a broker, addressing investors who are scared and perfectly willing to let the market go up without them is a pretty nice business proposition, especially when inherently unknowable political shifts, monetary policy and macroeconomic shocks can be cited in support of continued caution.
It's easy to sell sobriety to people who have already sworn off the hard stuff -- especially when the potential customers aren't even aware the market has been rising without them aboard.
In a fascinating pattern revealed in annual surveys by mutual-fund giant Franklin Templeton Investments, two-thirds of individual investors in 2010 answered that the stock market had fallen the prior year, when in fact it was up more than 25% in 2009. In both 2011 and 2012, half or more of respondents similarly claimed stocks were down the year before, when indeed the indexes had finished higher.
With the perceived riskiness of stocks embedded securely in the public mind, perhaps the stealth danger is that investors unintentionally assume more risk than they mean to, through something that seems to offer safety. For instance, bonds and dividend-paying stocks are widely being used as "cash substitutes," a role they are not nearly qualified to fill.
High-yield bonds are quite popular even as equities are disdained, yet both would be hurt by a U.S. recession. Slow economic growth is correctly touted as a healthy environment for high-grade corporate bonds. But current rock-bottom yield levels offer little buffer for even the passing shadow of an inflationary threat.
Indeed, stocks are popularly considered dangerous at current levels, yet they don't appear particularly misvalued relative to the rest of the asset-class chain, stretching from Treasuries to corporate debt to real estate investment trusts and beyond. All are being floated by central banks' money creation and their efforts, not yet entirely successful, to penalize risk aversion.
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