Here’s a good weekly summary via the RCS blog:
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
+ Uncertainty is decreasing. In last week’s recap, the bull’s strongest case was the “the contours of a resolution” taking shape regarding the fiscal debate in Washington. This week, more investors bought into this bullish point, leading to the S&P 500’s best weekly performance since June. In geopolitical news, a cease fire has been declared in Gaza. Decreasing conflict in the region means cooler heads are prevailing.
+ Risk markets are ripe for a tradable bullish move given that the S&P 500 is extremely cheap when looking at current P/E ratios. In fact, it would need to rally 26% just to reach the average P/E of bull markets dating back since the 60s. Meanwhile, trends in insider trading are hinting at a sustained rally to come. Mainstream investors are entirely too pessimistic on longer-term earnings growth, yet sources of future growth are around us….
+ …global growth will be the recipient of a welcomed surprise in China, where a rebound is gaining strength as per HSBC’s latest PMI reading, increasing to 50.4 from 49.5 and marking the metric’s first expansionary reading in more than a year. Meanwhile, “The German economy is holding up well in face of the euro crisis” and ECB officials signal that the central bank is willing to forgo $9 billion in future profits on its Greek holdings, a sign of understanding that some relief will need to be given to periphery countries.
+ …meanwhile, U.S. economic growth will be increasingly supported by a rebounding housing market. The National Assocation of Homebuilder’s Housing Index rises to a 6 and a half year high. Existing home sales for October surprise to the upside and upward pressure in home prices may be the reason for improving consumer confidence (Source: Econoday). Rising Housing Starts indicate that the housing industry is becoming more confident in the recovery. Meanwhile in manufacturing, Markit’s U.S. PMI report certainly doesn’t agree with the bearish claim that the sector’s is about to enter contraction. Finally, U.S. officials understand that today’s globalized economy is about competition and are considering establishing laws to encourage the brightest minds in the world to consider the U.S. as their home.
-Investors are like frogs in an increasingly hot investment environment. Europe continues to show signs of disunity and infighting as EU finance ministers are unable to agree on a revised version of Greece’s fiscal consolidation plan or approve to extend the country’s public debt target. Meanwhile France’s AAA rating is history as per Moody’s. Increasing investor skepticism doesn’t bode well for lawmakers as eventually financial markets will force the issue. Finally, economic and financial data is just awful.
– Confidence in the global recovery is evaporating. U.S. Tech companies are feeling the effects of a slowing global economy. Meanwhile, China reports that foreign investment in the country has fallen for 11 of the last 12 months. If bulls are certain that China is poised to rebound, why has the Shanghai Index dropped to a new low? Meanwhile, Japan reports a 6.5% plunge in October exports (exports to the EU cratered 20% YoY)
– As if critical damage due to a slowing global economy wasn’t enough, the U.S. economy is also contending with a crisis of confidence due to Fiscal cliff concerns. Investment is falling off a cliff as companies pull back on business spending. The consumer better step through this holiday season (early signs aren’t promising). Despite a higher trend in Michigan’s Consumer Sentiment index, weakening momentum is causing alarm.
– Cooler heads may seem to be prevailing in the Middle East, but the longer trend is of more hostility. Meanwhile tensions in Asia remain elevated and territorial claims dealing with the South China Sea are likely to exacerbate fissures in the region.
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