Predicting where the stock market will go in February might be a lesson in futility more than futurity, but that doesn’t mean we can’t pay close attention to what the analysts are looking out for – and other key pieces of market news such as earnings, announcements from the Fed, levels of consumer credit card debt and unemployment numbers.
Incidentally, February (in Canada, at least) is Investor Month. A great time to take stock of your investments and portfolio planning.
Gold has certainly softened from its $1200 highs in late 2009, but it’s still sitting comfortably above the $1000 mark. Some analysts think it is still overbought and could come down to a more fair value around $700-$800. Given that gold has no intrinsically fixed value, however, one has to wonder how “fair value” is arrived at.
Oil Breaking Down
By the end of January, oil broke down past the crucial $73 dollar mark – technical analyst Larry Berman has suggested that this means oil could fall back down towards its previous support levels. It is a bit odd to see, especially with the purportedly higher than expected boost in economic “growth” the U.S. saw over the past quarter (at a putative 5.7%, most of which is still from cost-cutting).
Stocks Treading Water
Average sentiment agrees we’re in a trading range for a while (which means heading sideways) – that the best thing is to stick with good dividend payers that fell out of favor during the boom-back of the past 10 months. That said, the TSX looks oversold as of the end of January.
Some analysts still say that the fundamentals of the stock market are improving. The January correction is just evidence that people are digesting the gains we had last year — after all, December 2009 saw every trading day rise, so it makes sense that January saw some profit-taking.
China and India Overheat
India’s central bank just revised rules for its banks’ reserve requirements – which indicates that it is an attempt to slow the hot growth down. And just earlier in the month, China did something similar with its own banking system and raised requirements for banking reserves in order to slow domestic lending down.
Raising banking reserve requirements is perhaps the safest way these economies can intervene in their markets without causing unintended consequences and ripple effects that might affect their exports (such as if they were to raise interest rates, or if China was to let the yuan float higher). It effectively reduces the amount which the banks can turn around and “print their own money” out of thin air and lend it back to other consumers.
Wild Card – European Economies
One wild card in this picture has to do with certain European economies – Greece, Spain and England, in particular, have not been doing well. The UK seems to be very resistant to coming out of recession at all, and debt issues are plaguing Greece. Meanwhile, Spain has an unemployment rate of 18.8% right now. The Euro has sunk recently against the greenback (albeit for reasons related to the USD as well) and the near-term does not look good for Europe. The UK has elections coming up and all eyes are back on Tony Blair with his role in Iraq.
Another wild card has to do with possible defaults in sovereign wealth funds, which now comprise a good chunk of the world’s money.
Based on all of this, you can come to your own conclusions about what’s going on now. We’re hanging out in a trading range, some thinking it’s a real bull market, others waiting for another shoe to drop – and this is what allows for the liquidity in markets as some players buy when others want to sell.
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