Around the globe this morning, stocks are swooning as traders bank profits. The U.S. dollar is getting a flight-to-safety bid, and gold, oil and silver are tumbling.
Europe is down hard, as is the euro. Japan finished down 3%, and China fell to its lowest close in 2 months.
Why is this happening? Most analysts are citing the weak US consumer confidence numbers on Friday as a driver. I think the failure of Colonial Bank on Friday is also shaking the market more than traders would like to admit. Colonial Bank was not a small bank, but its failure is largely staying out of the media.
Is there any good news for the bulls to latch on to? Sure. The Empire manufacturing number, which came out at 8:30 was very good. And JP Morgan reports that “the selling our equity desk saw scattered throughout last week was really just small profit taking, and we did not see a ton of new big shorts being put on.”
However, the bears will point to stories like the one at Marketwatch, which lists five reasons to be worried headed into the fall …
1) Sept is historically the worst performing month of the year; 2) the markets are sitting on huge recent gains; 3) insider selling is picking up; 4) short interest is winding down; 5) consumer remains very troubled.
Also see: Ten Unsolved Problems in the Global Economy
There are many celebrating the recovery as if it were already here. This is a brief post to outline my main remaining concerns for recovery of the global economy.
Also worth reading: A rally with troubling aspects
US stocks have risen almost 50 per cent from their lows in March, a turbo-charged performance that ranks as the best post-war market rebound. Five months and counting since the lows in March has the S&P up 49 per cent, eclipsing the 43 per cent rally reached 105 trading days after the lows of August 1982. Based on data compiled by Mizuho Securities, the S&P’s current rise is more than double the average 22 per cent gain seen during the first 105 days of a post-war bull run.
That has left the S&P 500 valued at 18.6 times the profit of its companies - the highest valuation since 2004. The index is now up 11.7 per cent so far this year but remains 35 per cent below its record high in October 2007.
”An analysis of past US recessions and recoveries suggests the rally could run out of steam soon,” says John Higgins, senior market economist at Capital Economics. “Most of the re-rating of the stock market that we would usually see prior to - and in the early stages of - an economic recovery has already taken place.”
Sean’s note — the real question for me is, will support/resistance hold, and will buyers come into the market? The next few days’ action will tell us a lot.
HERE ARE SOME OTHER STORIES WORTH READING
If you haven’t heard that September is the worst single month for stock returns in history, then welcome back from solitary confinement. And pre-Labor Day calm will typically give way to autumnal market drama.
But always remember that seasonality is climate, not weather. Volatility, even though it’s now traded, isn’t as constrained by supply as pork bellies, which frequently rally in late summer as tomatoes ripen during “BLT season.”
Consumer inflation tumbles to zero
WASHINGTON - Consumer prices have fallen more in the past year than in any 12-month period in nearly six decades - a huge break for shoppers but also a reminder that prices are being restrained by weak spending that’s likely to slow an economic recovery.
The recession and lower energy costs kept a lid on prices last month, causing consumer inflation to fall to zero. Most economists think prices are now in a sweet spot: ultra-low inflation without a serious risk of deflation, a destabilizing spiral of falling prices and wages.
Arctic warming already triggering methane release
The warming of an Arctic current over the last 30 years has triggered the release of methane, a potent greenhouse gas, from methane hydrate stored in the sediment beneath the seabed.
Scientists at the…. have found that more than 250 plumes of bubbles of methane gas are rising from the seabed of the West Spitsbergen continental margin in the Arctic, in a depth range of 150 to 400 metres.
You also might want to take a look at the Kiplinger Recovery Index
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