What's on the report
Markets around the world continue to fall on the back of Ben Bernanke's speech yesterday which indicated a strengthening economy.
Market Participants fear the fed will begin to taper its stimulus program which is supposed to keep the economy afloat.
PMI numbers indicate contraction in China at a growing rate as well as in the Eurozone including Germany.
UK retail sale look to have improved in the last month.
What I think
There is an obvious disconnect between current market movement and the fundamental drivers of the market as a whole. Economic expansion and GDP growth of 3 - 3.5% are impressive numbers and should indicate a probable expansion of company earnings. This sentiment is clearly not shared by markets around the world as indicated by their reaction to Bernanke's speech yesterday.
On the other hand, this sell off is matched by an increase in 10 year interest rates, This increase forecasts the end of cheap money for corporations therefore an expansion of interest expense across the board and a shrinking of bottom lines.
Analysts have been touting to no end the demise of the recent 30 year bond bull market, It's worth nothing that if they are right, the bond market has typically been a predictor of the direction a stock market should go. Owing to the interest rate theories and the bond market direction, it is easy to see this market fall into a 5-10% correction in the medium term. However, if we believe the Fed's assessment of the economy, we should see growing earnings in the coming quarters which will bolster the stock market further.
Download the complete report
Trade Well!
No comments:
Post a Comment