FinancialGauge
Independent Strategic Thinking
May 7, 2012
Weak Links
What is recent market divergence telling us?
The equity market rally starting in October of last year has been accompanied by laggards in some important economically sensitive sectors like Energy (e.g., Exxon Mobile and Chevron), Basic Materials (e.g., DuPont and Alcoa) and more broadly Emerging Markets stocks, in contrast to earlier rallies in 2009 and 2010. This suggests that we are entering a new phase in the post financial-collapse global economic environment where mounting sovereign debts and diminishing marginal impact of liquidity injections in the form of QEs by the Fed and LTROs by the ECB constitute impediments rather than props to continued economic growth – increasing the vulnerability of all risk assets.
Strategic Implications:
Given the long periods of adjustment to major shocks as seen in the periods from the 1929 crash to the 1940s and the 1973 oil shock to the 1980s, encompassing the depression and stagflation, respectively, markets may remain trendless with wide price swings for several more years highlighting the importance of more frequent adjustments to overall equity exposure. (See our previous features – P/E Challenged, Range-Bound Markets and Equities in Transition)
|
This article is distributed for informational purposes only. All information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy, investment product or financial instrument. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
|
|
