Do up your seat belts and enjoy the ride!
Wow that was sure a ride! The last time I had a ride like that was on the California Screamer roller coaster. Although it was longer, I can’t say I have had as much enjoyment on the stock market ride. The S&P/TSX was up almost 8% for the 1st half of the year then down 40% for the second half and over 50% if you measure it from the peak to the trough. The high over the last year was $15,154.77 in June and the low was $7,647.11 in November. On Friday Jan 2, 2009 the market closed at $9,234.11 with a market capitalization of about $2.3 trillion. At the peak the market capitalization was closer to $6 trillion. The Canadian composite finished the year off down 35%, which was the worst year ever since 1931 when the market dropped 37%. And we were one of the top performing major economies in the world. Be thankful we aren’t in Iceland which was down over 90%. So can we put this behind us or should we do up our seat belts and hang on?
The chart has some interesting changes happening. Recent technicals are looking pretty optimistic. On December 31st, 2008 the current price crossed the 50 day moving average. From the low in November, the S&P/TSX is up over 13% and the S&P 500 is up over 16% during that same period. We are still a long way away from the 200 day moving average which represents the longer term trend.
The recent rally has had some contributing factors; not withstanding the end of hedge fund redemptions, end of tax loss selling for 2008, geopolitical issues in the Middle East, Russia driving up the price of oil and, lastly, hope that Barrack Obama will implement significant and appropriate change to boost the economy. The surge in the last days of December and into the New Year has been on light volume so it will be interesting to see where this goes.
You better keep your seat belt on because we are about to see a raft of negative news come out on the economy. Most recent data suggests we are still in a recession and it will continue for some time yet. The Institute for Supply Management gauge came in at 32.4 for December. Being below 44 is not only an indicator of recession but, it is a 28 year low and worse than November’s figure of 36.4, according to Eric Lascelles, Chief Economics & Rate Strategist at TD Securities. He goes on to say, “and to the degree that the US slowdown is not actually a business led - driven rather by sour housing, financials and consumer factors – it speaks to the breadth and depth of the slowdown.” Further on Friday Jan 6, job loss reports come out in Canada and the US, and expectations are for a rise in unemployment to 6.5% and 7% respectively. This is important because it reflects not only business health but future consumer spending patterns. All this being said, the markets tend to rally prior to the bottom of a recession. This may be the start of a Bear market rally and with it comes some great opportunities. However, most would agree we won’t see any sustained long term rally unless it is led by financials. So do up your seat belt and try to endure the ride.
The chart has some interesting changes happening. Recent technicals are looking pretty optimistic. On December 31st, 2008 the current price crossed the 50 day moving average. From the low in November, the S&P/TSX is up over 13% and the S&P 500 is up over 16% during that same period. We are still a long way away from the 200 day moving average which represents the longer term trend.
The recent rally has had some contributing factors; not withstanding the end of hedge fund redemptions, end of tax loss selling for 2008, geopolitical issues in the Middle East, Russia driving up the price of oil and, lastly, hope that Barrack Obama will implement significant and appropriate change to boost the economy. The surge in the last days of December and into the New Year has been on light volume so it will be interesting to see where this goes.
You better keep your seat belt on because we are about to see a raft of negative news come out on the economy. Most recent data suggests we are still in a recession and it will continue for some time yet. The Institute for Supply Management gauge came in at 32.4 for December. Being below 44 is not only an indicator of recession but, it is a 28 year low and worse than November’s figure of 36.4, according to Eric Lascelles, Chief Economics & Rate Strategist at TD Securities. He goes on to say, “and to the degree that the US slowdown is not actually a business led - driven rather by sour housing, financials and consumer factors – it speaks to the breadth and depth of the slowdown.” Further on Friday Jan 6, job loss reports come out in Canada and the US, and expectations are for a rise in unemployment to 6.5% and 7% respectively. This is important because it reflects not only business health but future consumer spending patterns. All this being said, the markets tend to rally prior to the bottom of a recession. This may be the start of a Bear market rally and with it comes some great opportunities. However, most would agree we won’t see any sustained long term rally unless it is led by financials. So do up your seat belt and try to endure the ride.
Labels: Rallies and Reversals
posted by David Allard at
4:56 PM
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