Hi all,
Welcome back to this week’s Trading Tutors update. Watching markets oscillate through varying degrees of confidence over the past week has been particularly interesting, as China’s economic performance began to tip the scales of bearishness, followed by today’s rather disappointing housing numbers. Yet, in the midst of what would have once been seen as ‘market turmoil’, markets continue to defy gravity.
Today, we saw US markets shed a modest 0.28%, in the face of poorer than expected housing numbers and a supposed slowing of consumer housing demand. Yet still, American house prices continue to rise and the majority of major employers report improved conditions. In America, it seems, markets are faltering not on economic worries, but the feared investor reaction to any reduced stimulus measures or a reduction of Federal Reserve bond purchases. It’s a unique position to be in: Investors are somewhat scared of continued outperformance due to the pressure it may put on the hand that has been feeding them to change up its generosity. It’s this fear we will likely continue to see grip markets in coming months, as consumers realize that stimulus can perhaps be the worst, most addictive drug the US economy has ever seen.
Still, where would we be without it? Well, the answer to that differs based on personal opinion. Some say we would have perhaps learned our lesson and begin to rebuild a global economy on stronger foundations. Others believe we would have begun an irreversible depression, greater than anything ever experienced before us. I tend to side with the latter. We may be looking at an extended, often arduous recovery at the expense of America’s spending (and printing) but that is a far better situation than what could have been a far more contagious situation than we’ve experienced.
There are still a few points of concern here in America. Jobless claims by 32,000, reaching a six week high, backed by new housing starts also taking a dive at the same time. But how many times in the past have we seen varying results in US jobless claims, still to have very little impact in the overall direction of US equity markets. The US Federal Reserve still plays the cards and until any drastic economic changes take place, it is likely that this market will only improve in the face of worsening conditions abroad.
Should China and Europe be outperforming expectations at this point in time, it is likely US markets would be in a more dire position. Yet, as the US dollar remains low and the worlds’ second largest economy (China) continues to slow its pace, America continues to shimmer as a beacon of light, producing mediocre results in the face of rising pressures on offshore markets.
Even if US domestic numbers continue to falter as they did this week, the bulls still lean heavily to one side. Why wouldn’t they? The US economy has been to hell and back, its staged a recovery not matched by any other in our generation and it has built enough momentum to continue its resilience off the back of a strategically weakened US dollar, to some extent giving the federal reserve the reigns to its very own future…
Stay Ahead Of The Game,
Lachlan McPherson