Bull Market Update: 22 February.
The current status of the January bull run is that it looks fragile.
Concerns about 3 main issues now have the US markets and overseas markets looking over their shoulders:
- The US federal reserve is having some open thoughts and discussions about the easy money policy in the US and the various market players and day traders are nervous about increased interest rates in the US. (Even if this is 12 months down the track).
- The Italian elections 24th/25th Feb – may bring back Berlusconi as he has a good showing in the polls. His resurrection could cause the Eurozone to become fractious again.
- The Chinese government has issued a statement condemning the easy money funding of the property market in China and will move to restrict excessive speculation – causing outsiders to worry about some credit crunch inisde China and slwoing GDP.
So the correction I talked about below (a few weeks ago) is now showing up in the global markets. Stay tuned.
This is an update to a newsletter put out to my clients in early December, 2012.
Since that time (8 weeks ago) market sentiment has changed, and this is reflected in the current share market action in the USA and Australia.
Will it continue ? …. Yes, BUT…..
In my newsletter I gave 3 time frames (short, medium and longer) with an expectation that it could take as long as 18 months for the average conservative investor to be comfortable with the global situation and feel safe enough to return to the share markets – rather than be in the “safe havens”.
What we now see is the first swallow of summer and some early enthusiasm for a return to share market investing. The time frames may actually be shorter than was originally expected. In 18 months many mainstream investors may have joined the investor enthusiasm.
# Since June 2012 we have had a remarkably smooth run with various major potential issues failing to puncture the recovery mood. The Middle East, Europe, China and the US “fiscal cliff” have all so far been non events. Optimism has flourished and the markets have risen quite solidly as a result.
# Additionally, on 29th January 2013, the Australian Financial Review (front
page) published an article by Jonathan Shapiro advising that various fund manager industry sources had indicated in the USA that investors were switching their investments from safe Bond funds to Share funds.
The dollar value was approximately $US5.6 bill per week into shares and $US3.7 bill out of bonds. The daily market turnover in the USA is approx. $US21.3 bill. So it is a trickle as a start point, with more to come as investors feel comfortable that the share market is the place to be. The S&P500 had reached a milestone high of 1500.
Various other commentators in the business press have expressed a view that investors have returned to the market. So the optimism is “ON”.
# BUT … all runs have corrections and this looks like it could be on the cards.
A correction could be triggered by anything such as the further US budget negotiations still to be held, more company profits to be announced and the usual ongoing Middle East turmoil, as well as the Israel/Iran standoff.
Once the correction has been and gone in the coming weeks (or months) then we can fully reassess the appropriate advice to clients. It may be a mild, non event correction or it may be savage, calling into question the optimism of January.
# However, it can be interpreted that the shift into shares and growth assets has become a subject for discussion in 2013 for all investors – to varying degrees depending on your own set of circumstances and attitude to volatility.