Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Economic Uncertainty Generates Stock Market Volatility

Stock-Markets / Stock Markets 2010 Feb 12, 2010 - 06:25 PM GMT

By: Sy_Harding

Stock-Markets

Best Financial Markets Analysis ArticleThe stock market loathes uncertainty.

Twelve months ago the market was in the midst of the January-February mini-crash to its March low. The S&P 500 lost 25% of its value in those final two months of the 2007-2009 bear market. Its problem was uncertainty over whether the aggressive government stimulus actions rushed into place could possibly work fast enough to prevent the recession from worsening into the next Great Depression.


Six months ago the market was in the midst of a strong new bull market that had the S&P 500 up more than 50% off its March low and, having wiped out the loss of January and February, up more than 20% for the year to date.

The catalyst for the continuing rally off the March low? Economic uncertainties were fading away. Home sales were rising month after month. Monthly job losses were slowing dramatically. The third quarter had arrived, with indications that the recession was over and positive GDP numbers for the third quarter would confirm that. And sure enough, after four straight quarters of decline, U.S. GDP grew 2.2% in the 3rd quarter. The recession was over.

One month ago the news seemingly got even better, when it was reported that GDP grew 5.7% in the fourth quarter, the fastest quarterly growth in 6 years.

But instead, uncertainties came crowding back in, and the stock market has been having problems.

The uncertainties included concerns that if global economies were doing so well, when will central banks, including the U.S. Federal Reserve, begin reversing their stimulus efforts and easy money monetary policies? And if and when they begin, can they succeed in doing so without stalling out the economic recovery?

On the other hand what if the economic recovery is only temporary, the result of government stimulus programs that are scheduled to end, and temporary inventory rebuilding by corporations in the last half of last year?

Unfortunately, a month ago, before markets had enough evidence to be certain of one or the other scenario, they were surprised by monetary moves made by China to rein in its economic growth to avoid potential inflation. The rest of the world had been banking on their economies being able to feed off the strong demand for commodities and products created by China’s exceptional growth.

Markets were unnerved by the news, and declined for three of the next four weeks, giving back approximately 7% in the process.

The uncertainties increased this week with reports of potential debt emergencies in several European countries, most notably Greece, but including Iceland, Portugal, and Spain.

And on Friday came news that Chinese regulators have again raised the level of cash or equivalents Chinese banks must hold, taking money out of circulation, as they continue efforts to slow the country’s economic growth, specifically pointing to preventing potential bubbles in speculative investments and real estate.

It was also reported Friday that the economic recovery in Europe stalled in the fourth quarter, with GDP in the 16 Eurozone countries rising only 0.1%. That raises concerns that Europe may be slipping back into recession, and has European economists pointing out that Europe’s recovery in the third quarter had been due to temporary catalysts, including government stimulus spending and temporary inventory building.

The additional uncertainty for the U.S. market is that those are the same factors that have many economists expecting the U.S. economy will slow in coming quarters. More than half of the exceptional GDP growth in the U.S. in the fourth quarter was also due to inventory re-building after companies had allowed their inventories to fall to record lows in the recession, and to government stimulus packages, including rebates to first-time home buyers, and the Federal Reserve’s purchases of mortgage-related assets, which are scheduled to expire over the next two months.

So economic uncertainty has returned, and with it market volatility.

Technical analysis of the market may soon provide some indications of what to expect. As shown in charts on my free blog that you might find very informative, in their three-week decline the major stock market indexes became short-term oversold beneath their 21-day moving averages. As the charts show that almost always brings a short-term oversold rally back up toward the moving average. And that happened this week.

The critical question is whether the market can break out above the moving average and resume the bull market, as it has done several times in the last ten months, or with the return of economic uncertainty, will the moving average will now be overhead resistance on rally attempts, as happens when more serious corrections are getting underway.

My advice is to watch the technical charts. At this point they are likely to be more informative than trying to sort out the conflicting economic debates that are going on.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Gold Baker
17 Feb 10, 04:13
market

Knowing the current situation of the stock market is crucial especially if you have stocks invested in it. It is better to be up to dated to the situations so that you could know the actions to be taken if some changes in the stock market occur as to secure your stocks to lose. Today, the stock market is unstable so we need to be vigilant to the current market conditions.

Regards,


Post Comment

Only logged in users are allowed to post comments. Register/ Log in