Another week has gone by and the volatility continues.
The global markets continue to take cues from Europe, where economic stability is called into question on a daily basis.
Many investors thought that when announcements were made just a month ago on how Europe was going to handle Greece, recapitalize the banks and create a bailout fund (that was to be leveraged up to $1 trillion) that this was the beginning of the end of the European crisis.
The global markets reacted extremely positive that day, pushing the main equity markets in North America up two or three hundred points.
However, since then, even though we have seen the situation in Greece stabilize somewhat (new government and austerity measures passed), Italy and Spain are now experiencing issues with their debt (10-year bonds approaching 7 per cent) and the bailout fund that was suppose to be increased up to $1 trillion to help European countries and their struggling banks if necessary, has not been done.
Why does this market continue to sell off? Who is doing the selling? Are there not any positives in the economy today that can help push our markets higher?
The reasons for the markets sporadic trading and ongoing volatility, as I have said many times, are coming from Europe.
European headlines seem to trump any good economic news out of Canada or the United States at this point.
The individuals that keep selling the market at the end of the day when we see the large falls are the high frequency traders, the day traders and the program trading that gets executed every day.
On many occasions, traders don’t want to hold positions in their stocks overnight, let alone over the weekend (especially) and thus settle up at the end of each day.
Nobody seems to know how the markets will look when we wake up each morning with Europe trading in the early morning hours while we sleep. Thus settling up at the end of the week or even each day makes sense to many and that is why you see large swings in the market place at the end of the day. When you read that investors have sold or are selling off the market, please understand who these individuals are, because they are not the average investor walking the streets like you or I.
They are the traders who get paid whether the market falls or moves higher.
There are many positives that exist in the world today which are bullish for investing. People lose sight of these positives when they read the negative headlines each day.
I thought I would mention theses positives now so that investors can see for themselves that the world is not as bad a place as many would lead them to believe. It's time for investors to take notice of the positives rather than concern themselves with European politics or whether the borrowing costs of Italy and Spain are above 7 per cent.
First, in the United States, you have retail sales and manufacturing data clearly showing that the economy is continuing to move forward.
The housing market has clearly bottomed and is finally showing some positive signs.
Employment numbers in the U.S. are clearly better with weekly jobless claims falling for many weeks in a row now and the monthly jobs numbers growing on a regular basis.
President Obama recently announced free trade agreements that he is working on with a number of countries in the Asian area and many are predicting GDP for the third quarter in the U.S. to be between 2.5 to 3 per cent and possibly higher for the fourth quarter. This does not sound like a country that should be nervous about a double dip recession.
Everyone mentions the decline in GDP in China over the last few months. However, this GDP decline has been done on purpose. They have raised interest rates and ordered its banks to restrict lending to try and slow down their economy that was beginning to spiral out of control with inflation. China has said recently that their GDP could drop to about 8 per cent and they believe this to be sustainable. They also have said recently that they were going to increase their imports to help the world economy while maintaining their export levels thus lowering their huge trade surplus.
This is a positive for us here in Canada and for the world in general.
Lastly, on the European front, we now have two new governments in Greece and Italy which many believe will be able to push through the austerity measures the European Central Bank and the Euro region as a whole are requesting. The European Central Bank has agreed to cut interest rates which hopefully will help stimulate the region’s economic activity.
With all the liquidity in the global markets, especially in the U.S., and with the stimulus that the government and central banks around the world are discussing and providing, this market should move significantly higher once the magnifying glass moves away from Europe and back on places like the U.S. where things are getting a lot better.
If you have any questions regarding the above article or are looking
for an investment advisor 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.