The European Union has finally woken up to the issues at hand, yet the market seems to be as fragile as ever. Many analysts and investors are finally getting what they want, which is a large co-ordinated response by all 17 nations to the crisis at hand the in EU.
This is a crisis that seems to be spreading from smaller countries such as Greece to the larger nations in the union. Organizations such as the International Monetary Fund and the European Central Bank are doing their best to keep “the contagion” from spreading. There have been a few initiatives agreed on by the 17 member countries that were intended to stabilize the area, but to no avail. The volatility continues and the market selloff persists.
Many investors are wondering what it is going to take for global markets to move higher again. It seems like all markets, even on good days, tend to sell off as the investment day closes at 4p.m. In my opinion, investors are witnessing traders selling into day to day rallies as these traders are still not convinced the world economy, and especially Europe's, is in a better place. Momentum is clearly to the downside and until this changes, it will be hard to gain traction heading into the fourth quarter.
I feel that this upcoming earnings season will be very important for the broader North American markets. Many bears investors are betting that this earnings season will be a bust. Yet if corporations can clearly show that things are not as bad as the macro picture is saying, then I think we can see a rally in the fourth quarter. Remember, the market has fallen very hard and very fast. In my opinion, all it would take is a little positive spark to turn a fragile market in the other direction.
In my estimation, if we do get some positive earnings for the third quarter and if we get some continued movement towards a stable European Union, the two combined initiatives can spark a very large rally in the markets, which is what I think the bulls are holding out for.
I believe the current market is very confused in regards to the micro and macro picture, which is what's behind all the volatility of the past few months. On the one hand, many CEOs are saying positive things about their companies, while on the other hand, governments and central banks are painting a more negative picture through both their actions and their non-actions. Which will win out, the micro or the macro? Apparently the stock market doesn’t know and thus we continue to sway between the ups and the downs each day. Volatility, in my opinion, will be with us for some time to come.
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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.