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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
Investors dumped equities late last week ahead of the weekend – largely due to the tenuous situation with Greece’s debt and the associated fall in the euro (and a commensurate rise in the dollar). But I also think there was a flight-to-safety ahead of the 9/11 anniversary, especially among Wall Street traders given the terror threats and heavy security in NYC.
This week, however, has brought a glimmer of optimism. Equities are up nicely through Wednesday, with the S&P 500 advancing about 3% since last Friday’s close, led by Industrials, Technology, and Consumer Services sectors, while gold, Treasuries, and the dollar are all slightly down.
Nevertheless, the S&P 500 is still down about 5% year-to-date through Wednesday. But the more optimistic market commentators suggest that U.S. stocks look cheap at 12x earnings projections and with an S&P 500 dividend yield of 2.1%. With cash and bonds yielding almost nothing, stocks look attractive by comparison.
As I mentioned last week, Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, believes the U.S. will avert another recession. And Wharton professor Jeremy Siegel thinks that stocks are 25-30% below his fair market value, while Warren Buffett has been buying up value stocks, including Financials. Corporations still boast strong balance sheets and can generate good profits even with lackluster demand.
The biggest risk is what is happening in Europe, but a sort of “global teamwork” is in the works to prop up the weaklings. After reports on Monday that China was considering investing in Italy, reports surfaced on Tuesday that Brazil, Russia, India, China, and South Africa (BRICS) are looking into bond purchases to help strengthen the situation. Of course, these exporting nations have a huge vested interest in keeping the economies of Europe and the U.S. healthy enough to keep buying products and commodities from them.
The purchase of European sovereign debt likely would be limited to the bonds of the more stable nations like Germany and Great Britain, and they also might consider providing aid through the International Monetary Fund. Apparently, September 22 is the date when the big “planning meeting” will take place in Washington D.C. between finance ministers and central bank governors of the BRICS nations.
With the Greek 1-year yielding over 100%, things could hardly be more…
