The North American markets are off to a great start in 2012. The U.S. had the best first 10 days of trading at the beginning of the year that they have experienced in many years. Why has sentiment changed? Why has this market gone from accentuating the positives instead of worrying about the negatives?
As I have said many times, there are always positives and negatives in the economy on any given day. In my opinion, the stock market will move higher or lower that day or week based on what set of data the market and investors choose to focus on. Judging by market reaction since Christmas, it looks like investors have been focusing on the good while brushing the bad to the sidelines.
Even though there are both negatives and positives to this market daily, I believe there have been a few fundamental reasons why this market has moved noticeably higher. First, Europe seems to have finally stabilized in the past few weeks. I believe that ever since the European Central Bank allowed many of the continent’s banks to borrow from them, the volatility seems to have calmed down. The VIX (measures market volatility in the U.S.) has really dropped. The European Central Bank has said many times that they were not going to invest massive amounts of money into the European countries that needed it the most. However, they did allow major banks to borrow money from them to do as they wished.
What we have seen from the ECB’s actions are that many of these banks borrowed at one per cent to buy government debt of Italy or Spain at interest rates of five or six per cent, thus making a nice profit. This, in turn, has helped those countries roll over their debt and helped bring down general interest rates these countries have to pay. Was the ECB cunning enough to say on one hand that they could not help these sovereign countries directly but do it indirectly through the banks in Europe? It looks that way.
Another major reason for the market turnaround at the beginning of this year is that the U.S. macro economic data continues to surprise to the upside. From employment, to housing, to manufacturing to overall GDP, it appears as though the Unites States is improving. I feel that the economic data has been getting better for quite some time now but finally investors are taking notice and believing in it. In my opinion, investors are getting more positive and are investing once again.
Overall, we have had a great start 2012. Many investors and analysts believe that 2012 will be a good year for investor returns. However, many thought this last year as well. Thus, you never know what the next 11 months will bring. I believe that if investors position themselves in good quality investments, regardless of what happens throughout the rest of the year, you will be happy with your returns at the end of 2012.
If you have any questions regarding the above article or are looking
for an investment adviser to help you with your portfolio, please visit
my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a
DundeeWealth Inc. Company. This is not an official publication of DWM
Securities Inc. The views expressed are those of the author alone and
are not necessarily those of DWM Securities Inc.