Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Economic Expansion Ahead? World Stock Markets Analysis

Stock-Markets / Stock Markets 2015 May 15, 2015 - 11:10 AM GMT

By: Puru_Saxena

Stock-Markets

BIG PICTURE - The global economy softened during the first quarter of this year; however, reflationary efforts by the central banks should bring about a pick-up in business activity. At this stage, it is difficult to tell precisely when the economy will accelerate, but we suspect that various data points will show a marked improvement during the back half of this year.

You will recall that the world's economy slowed down significantly at the beginning of 2015 and this coincided with a surge in the US Dollar and extreme strength in government bonds. In response to the deflationary pressures, the European Central Bank (ECB) unleashed its QE program and unsurprisingly, this policy initiative immediately sparked a rally in European stocks. A few weeks later, the US Dollar Index put in an intermediate-term top, government bonds peaked, crude oil bottomed and the major foreign currencies ended their relentless downtrend.


Given the above developments, it appears as though the ECB's QE program has momentarily succeeded in shifting investor sentiment and the markets are now positioned for economic expansion later this year. Whether you like it or not, the ECB's QE initiative has unleashed a strong rally in European stocks (Figure 1) and it appears as though bond purchases will revive business activity in the 'Old World'.

Figure 1: Euro STOXX 50 (daily chart)

Euro STOXX 50 Daily Chart
Source: www.stockcharts.com

You will recall that QE in Japan and the US created a huge tailwind for the stock markets of those nations, so it is only reasonable to assume that it will have a similar effect in Europe. At present, the ECB has committed to bond purchases until September 2016; however, if business activity does not pick up sufficiently, it is probable that policymakers will extend the QE program.

From our perspective, the European QE initiative has prolonged the duration of the ongoing primary bull-market in common stocks and as long as the Bank of Japan (BOJ) and the ECB are purchasing assets, a bear-market will not occur.

It is notable that all the bear-markets throughout Wall Street's history (with the exception of the 1987-crash) occurred late into the monetary tightening cycle; so it is highly unlikely that the grizzly will growl at a time when two of the major central banks are trying to stimulate the economy!

Look. If interest rates normalise in the near future, then today's stock market will come across as very expensive. However, if interest rates remain low for an extended period of time, then today's stock market will look very cheap!

When it comes to investing, the risk free rate of return determines the value of every asset and in the context of today's record-low interest rates; Wall Street does not look particularly expensive. However, if business activity picks up abruptly and inflation rears its ugly head, then the Federal Reserve will be forced to raise its Fed Funds Rate aggressively and that will probably trigger a plunge in common stocks. So, if you own common stocks, perversely, you really do not want the economy to boom anytime soon!

If you review Figure 2, you will observe that during Q1 2015, the US economy barely grew and under this scenario, it is improbable that the Federal Reserve will raise its benchmark short-term interest rate anytime soon.

Figure 2: US Gross Domestic Product (% change from preceding period, quarterly)

US Gross Domestic Product
Source: St. Louis Fed

Currently, many market participants are expecting rate hikes during the second half of the year. However, if the Federal Reserve stays on hold until the end of the year, then it is conceivable that global stock markets will appreciate significantly from these levels.

Turning to Asia, it is interesting to observe that a number of the prominent stock indices have recently broken out of multi-year trading ranges and this is a bullish development. Once again, this renewed strength in the region's stock markets suggests that the easy monetary conditions in the developed world are spilling over to the peripheral economies.

It is noteworthy that over the past month, Hong Kong's Hang Seng Index, Singapore's Straits Times Index, South Korea's Seoul Composite and Taiwan's Weighted Index have all broken out of formidable trading ranges and the stage is now set for impressive gains!

Elsewhere in Asia, as per our expectation, the Shanghai Composite Index is charging ahead. Although China's stock market is currently over-extended and due for a consolidation (Figure 3), the primary uptrend should continue for several months.

Figure 3: Shanghai Composite Index (weekly chart)

Shanghai Composite Index Weekly Chart
Source: www.stockcharts.com

Past performance is no guarantee of future returns, but it is noteworthy that during the previous bull-market (October 2005-October 2007), the Shanghai Composite appreciated by over 500% and that primary uptrend was only punctuated by three consolidation phases which were both brief and shallow (Figure 3).

During the current bull-market, so far the Shanghai Composite has undergone just one consolidation phase (early 2015) and it appears as though we are now approaching the second routine pullback. Technically, China's stock market is very overbought so a reaction to around the 4,000 level cannot be ruled out. Thus, if you are looking to deploy additional capital to China's A-shares, it may be worthwhile to invest after a near-term pullback.

At this stage of the cycle, nobody knows when China's bull-market will end, but given that the preceding bear-market lasted for 7 years, the ongoing uptrend could easily continue for another year or two.

Although we do not possess a crystal ball, we are of the view that before the end of this bull-market, the Shanghai Composite will surpass its all-time high recorded in October 2007.

Over on Wall Street, it is encouraging to observe that the tech-heavy NASDAQ Composite and the Russell 2000 Growth Index are showing strength and faring better than the broad market.

If you review Figure 4, you will note that in February, the Russell 2000 Growth Index broke out of a multi-month trading range and during this stock market pullback, it has found support above its March-low (blue dotted line on the chart). Given the fact that this index is comprised of growth stocks, its relative strength bodes well for the broad market.

Figure 4: Russell 2000 Growth Index (daily chart)

Russell 2000 Daily Chart
Source: www.stockcharts.com

Turning to the technical picture, it is encouraging to note that during the recent stock market pullback, the number of 52-week NYSE lows did not spike and the NYSE Advance/Decline Line (measure of market breadth) is sitting just beneath its record high. Elsewhere, after a large consolidation phase, the KBW Bank Index is coming back to life and approximately 62% of the NYSE stocks are currently trading above the 200-day moving average.

Bearing in mind the above, we are of the view that the next bear-market is at least several months away and after some additional consolidation, the stock market should continue its north-bound journey.

As far as sector analysis is concerned, it is notable that airlines, asset managers, auto dealers, auto parts manufacturers, banks, biotechnology, footwear, housing materials, industrials, railways and restaurant stocks are performing well.

In terms of geographical exposure, in addition to the developed world (Europe, Japan and the US), many stock markets in Asia (China, Hong Kong, India, Philippines, Singapore, South Korea and Taiwan) are now showing signs of strength.

Bearing in mind the above, we have allocated our equity and fund portfolios to the strongest areas and are confident that these strategies will deliver robust returns over the following months.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena
Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2014 Puru Saxena Limited.  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.

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules