Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22
State of the Stocks Bear Market - 15th June 22
The Gold Market Is Getting Ready for Another Interest Rate Hike - 15th June 22
The Dow Industrials’ Big 8-Wave Cycle is Incomplete - 15th June 22
7 Things You Need to Know About Finances - 15th June 22
Dow Stocks Bear Market Forecast Trend Trajectory - 13th June 22
Why Putin has KILLED Russia - 12th June 22
Trading the Calm Before the Stock Market Storm – Consider Putting On A Long Strangle - 12th June 22
Shrinkflation! - 12th June 22
6 Useful Tips To Help You Create A Good Marketing Strategy - 12th June 22
Big Inflation Will Spur Gold Price - 11th June 22
Economic "Hurricane": Here's a Take on a Bank CEO's Warning - 11th June 22
Axie Infinity (AXS)Mmade a lot of People Rich… Temporarily, What We Learned - 11th June 22
The CRACK UP BOOM! Implications for Stocks, Housing. and Commodities, Silver Potential - 10th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stocks Bear Market Has Not Seen Its Bottom Yet

Stock-Markets / Stocks Bear Market Mar 27, 2009 - 05:47 AM GMT

By: PaddyPowerTrader

Stock-Markets Best Financial Markets Analysis ArticleAs things stand, US equities are on course to complete the biggest monthly gain since 1987, with the S&P 500 closing up 2.3% yesterday. Big tech starred, with Intel up 5.9% and HP jumping 7.1%, pushing the Nasdaq to back to flat for the YTD - fairly remarkable. Sentiment continues to be boosted by an economic dataflow that is no longer weaker than expectations. Indeed some houses (Barclays for example) are squinting hard, thinking we have seen the trough and are even seeing the green shoots of recovery in the US. And I think that a better 7-year Treasury note auction (which went off at close to market expectations) helped too.


We have had our development team hard at work adding a news feed reader to our trading platform. Both live and demo traders have the ability to take advantage of this. If you are interested in having a look at this before it is launched we would be very grateful for your feedback on it. Should you take part in the trial you will be entered into a draw for a £250/€300 bonus deposit to your live account. To take part simply mail us at pptraders@paddypower.com .

Today's Market Moving Stories

  • My worry is that comments from various Fed regional presidents over the last couple of days do not support the equity rally. Mid-week saw Yellen warning on the risks still posed by the commercial property sector. Yesterday saw Fisher warn that Q1's GDP will be as bad as Q2 and that there'll be negative growth throughout the year. Stern said the US recession will last until at least mid-year and then the recovery will be only subdued. Lacker said the major stimulus provided by the Fed at its last meeting reflected its concern over the extent of the economic weakening. Plosser described the outlook as ‘pretty ugly'.
  • The absence of proper policy in Japan is showing up in the details of the economy. Deflation is looming large with February CPI showing up flat yoy . Moreover, retail sales were down 5.8% yoy (a seven year low) despite heavy discounting, as consumers cut purchasing of discretionary items.
  • German March CPI figures due today may generate a little excitement. Data already released by the state of North Rhine Westphalia showed inflation at 0.3% yoy , a ten year low, on the back of lower oil prices. This should be reflected in the pan-German figure released later today. Such a big decline in inflation should set the seal on next week's expected 50bp rate cut. The spectre of deflation within the Eurozone would open the door for the ECB to be more forthright on unconventional policy measures. Indeed, ECB Vice President Papademos conceded yesterday that the Bank could buy private sector bonds in a bid to boost liquidity in the face of a feared “vicious circle” of negative effects.
  • Good news for online gaming stocks? The European Commission draft report published yesterday has concluded that the US Justice Department crackdown on European online gambling companies violates US commitments under the World Trade Organization. The commission said that it would seek a negotiated solution with the US rather than file a complaint at the WTO. Recall that European online gambling firms lost billions of euros in market value after Congress passed legislation in 2006 making it illegal for banks and credit card companies to make payments to online gambling sites.
  • The world has been treated to the full force of Brazilian President Lula's intellectual might. His detailed analysis of the current economic problems has concluded that it is all caused by blue eyed white people .
  • According to UBS, institutional investors are ploughing back into equities .
  • Some South Park video clips that are bailout comedy gold .

Corporate Profits Slump In 2008, More To Come
The entrails of yesterdays US GDP numbers show that corporate profits sank 16.5% in Q4 2008, the largest quarterly drop in 55 years. Non-financial companies did not escape. Their profits dropped 8.9% in 2008, far less than financials, but this year's expected economic contraction will cause their profits to fall faster. US companies with global operations did the best, as rest of world profits fell only 6% in 2008. These profits accounted for 31% of total profits, double their historic contribution. Total profits have fallen in 8 of the past 9 quarters and 26.2% in all, well above the average cycle loss of 15.5%. More losses are in store for 2009.

Stock Market Has Not Seen Its Bottom Yet
Baby BullThe rally that we have seen since the lows of 9th March has been primarily driven by financials, which have been buoyed by the Treasury's latest plans to deal with “legacy” assets. While the bounce in financials could run on, the broader economy is still in the doldrums and unlikely to turn the corner any time soon. As such, I think the prospects for non-financials remain far from rosy. Indeed, all sectors are trading on significantly higher earnings multiples than they did in the deep recession of the early 1980s. Overall, I'm skeptical that the bounce in equities will last and continue to expect the S&P 500 to head back down towards 650 in coming months.

It was perhaps only a matter of time before we saw some sort of rebound in US banking stocks. After all, the cyclically-adjusted price/earnings ratio for the US financial sector (using 5-year trailing average earnings) had fallen to around 4 in early March, way below its 15.9 average since the late 1970s. Clearly a lot now rests on the success of the Treasury's latest plan to help banks dispose of “legacy” assets. I won't be convinced that the rally in financials has more legs until we get a clearer handle on the price investors are prepared to pay for banks' unwanted loans and securities.

In the meantime, I still think it is too soon to call the turn for the broader equity market. In the Bearwake of its recent bounce, the S&P 500 is now trading on a cyclically-adjusted P/E ratio of a little over 14. That is a little below its long-run arithmetic average of 16.55 since 1900, but well above the troughs hit during past deep recessions. At the market's low point in August 1982, for example, the cyclically-adjusted P/E ratio was also just 8. What's more, history suggests that stock markets typically only tend to recover around six months before a turning point in the business cycle has been reached. For these reasons, I think the current rally could be a false dawn.

Equities Briefs

  • Barclays are up over 4% this morning on a story that an FSA stress test has shown that they don't need anymore more funds.
  • Air France is off about 5% on a profit warning which is also dragging down other airline stocks (BA etc).
  • IBM is planning to lay off roughly 5,000 U.S. workers and outsource many of their jobs to India. The cuts fit a recent pattern for IBM of sending more work overseas and are aimed at the firm's global business-services division.
  • Élan saw it share price jump as much as 15% yesterday on news that Denmark's Lundbeck is preparing a bid at €8 a share. Both Élan and Lundbeck refused to comment on the speculation which was originally flagged in early January. Lundbeck has repeatedly said it is looking for deals to boost pipeline, as its biggest drug Cipralex sees its patent run out in 2012. The deal at the speculated price would value Élan at $3.8bn which may be too costly for Lundbeck who currently have a market cap $3.5bn and $2bn of debt.
  • The Irish Takeover Panel has set an April 20th deadline for a bid by Moonduster for ICG. If none is forthcoming, Moonduster will be unable to make a fresh offer for at least 12 months.
  • Bank of Ireland are holding an EGM in the Savoy cinema today to seek shareholder approval for the proposed €3.5bn government sponsored recap of the bank which will give them a 25% stake. AIB's shareholders are due to vote on May 13th.

Dogbert The CEO

And Finally… Gremlins Have Some Good Investment Advice

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

© 2009 Copyright PaddyPowerTrader - 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.

PaddyPowerTrader Archive

© 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