I’ve had a few clients call and email me for my thoughts on the markets, so I thought I’d take a minute to put down my thoughts.
Traders are currently focused on preservation of capital, not seeking returns. There are a number of big picture factors:
- The Obama Administration is seen as anti business. The ‘bank tax’ in the financial reform bill is shown as the latest evidence of this, as it will serve to lower bank lending at a time when more credit is needed, not less.
- The emphasis on fiscal austerity at last weekend’s G-20 is being espoused by many as the wrong medicine at the wrong time. Some of this comes down to Keynesianism vs. monetarism, but many make the case that now is not the time for governments to tighten their belts, a la the IMF bailouts of recent years.
- Weaker economic numbers out of China (and last night India). Many have espoused that China would be the engine that would pull the world’s economy out of the slump, and the recent evidence indicates Chinese growth may be slowing. Additionally, China is facing a new problem with labor troubles, as Chinese workers have struck for higher wages. This may be proving to be the end of the line for the world outsourcing movement, as production around the world to the place where labor is cheapest.
- Concerns about the US labor market. The US equity rebound has not been accompanied by a rebound in the US employment picture. In May, private sector employment rose by 41K, while during the early stages of a “normal” recovery payrolls rise by an average of 250K per month. I don’t know about you, but I continue to hear of friends, acquaintances, etc. losing jobs or having financial problems. Until we get a sustainable growth pattern in employment, it is hard to see how other problems (housing, consumer spending, tax receipts at all levels) will improve. A big jump in weekly unemployment claims and a 30% drop in pending home sales in May added new fuel to the fire.
- Add to the mix fears about the Middle East, where talk about Iran and its nuclear ambitions has turned more bellicose. Many believe that the US and/or Israel are closer to an attack, as the US has moved a third carrier to within striking distance to Iran.
So this all adds up to an environment where return of principal, not reaching for return is the goal of big money traders. Maybe a good payroll number tomorrow and a long July 4th weekend will brighten the mood. In the mean time, expect continued heightened volatility. This is not the time for bravery.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
