![Nasdaq in February [credit: life.com]](http://www.getmoneyenergy.com/wp-content/uploads/2010/02/Nasdaq-in-February.jpg "Nasdaq in February [credit: life.com]")
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.
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Gold Overbought
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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.
Why gold might still head back up to $2000/oz
Oil Breaking Down
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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).
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Stocks Treading Water
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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
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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.
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Wild Card – European Economies
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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.
See the Ten Largest Sovereign Wealth Funds
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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{ 6 comments }
I think you’ll be surprised by the bounceback in the UK economy this year, as I just wrote on my blog, although I accept this is a minority view. When you see how many estimates go into the GDP calculations – and the huge revisions upward that have happened at the tail end of previous recessions – it’s not such far-fetched view.
I’d say the big problem of investing in Europe for your Canadian readers is the strong Euro, though I’m not sure whether the strong Canadian dollar is punching at the same weight.
The UK pound is still on its back, making UK stocks a bargain for overseas buyers in my view. (Look at Kraft buying Cadbury in the past few weeks, for a sign the big beasts are coming around to the same view!)
Thanks for this interesting look at what February could bring. I was especially glad to see a little less hype about gold. I live in an area where everyone talks about the “tangible” value of gold. Like everything else, perception plays a role in the value of gold, and it’s value is no more “tangible” than if we decided as a society that we thought apples were valuable…
@Monevator – Interesting to compare the Kraft purchase with the weakened pound. The Canadian dollar is up somewhat against the USD but still not at parity. It’s taken me a while to be able to understand why the investment community values the loonie as it does. It has less to do with intrinsic fundamentals (eg., sound banking sys, lower debt levels) than with the sheer amount of currency in circulation. Less means less investors can buy it up, and it’s more volatile when it happens.
@Miranda yes, the bubble theorists were right:) Gold quickly fell off its $1217 highs. It’s interesting to hear discussion of peak gold – it’s considered so for different reasons than peak oil. I guess gold is tangible relative to other assets, though – I understand one can’t eat it or put it in the gas tank, but compared to paper money one sees what the attraction is. I still don’t own any gold, actually.
The market took it on the chin today closing at the lowest levels this year. I have to believe we are going to go up from here.
@Daddy – yes, I wonder if that is going to be the final correction or if we’ll slide below 10,000 on the DOW again (like we did on Friday the 5th) and hang out there again for a while. All depends on where traders have their stops in place and if any news from the EU on Greece spooks anyone on Monday.
I agree with Miranda regarding gold… it’s become the domain of doomsday profits. Besides, if they’re right then the only things that will have tangible value are guns and ammo. ;-)
But seriously, another thing that drives me crazy is talk of a US recovery and the bull market in the stock market. I just don’t see a compelling reason to suspect a strong recovery. The US GDP numbers are largely the result of inventory scale-back and increase efficiency, and the earnings figures only look good compared to a year or two ago, not much real growth. So, I think your call on a sideways market is a good one.
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