Economic Surprise Or Reality?

8 May

Recently I have been advising  to be cautious as the market has and does appear to be at a major crossroads.  

From a macroeconomic viewpoint, risk assets such as the global stock markets could see further trouble. Fears over the US gross domestic product (GDP) came in lower than expected with further revisions likely in the near future.  Unemployment claims still seem to be a problem and until recently, the media failed to report it appropriately.

Additionally, there are two other macroeconomic data points which need to be mentioned. 

  1. The Citigroup Economic Surprise Index (produced by Morgan Stanley) has moved below zero and is showing a negative reading.  This index is generally a leading indicator regarding equity prices and the recent decline is problematic for the bullish case.
  2. The fundamental data has started to significantly skew towards the downside, which is likely a result of the economic and fiscal problems in the Eurozone and potentially in China. 

I believe that the next few weeks are going to be critical and the markets are placed ready for consolidation while traders await more economic data.  Fundamental data indicates that a slow down may be beginning, which may lead to a deeper correction. However, the longer term picture for equities is quite murky based on the economic data points we are seeing paired with additional concerns stemming from the European sovereign debt crisis. 

Right now I would urge readers to be cautious regardless of which direction they favour. Although, opportunity comes from the volatility created in the market and benefiting from the changing directions in the cycle can lead to profit.

Remember be cautious but not too cautious and pick your strategy carefully.

Personally, this period of volatility has been a great opportunity for profits and I believe we are on the cusp of a very profitable section of the cycle but appropriate investment strategy and portfolio structure is essential.

My points of contact are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

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