The dash for safe haven assets is continuing on Thursday, as stocks continue to be sold in favour of German bunds, Gold and the yen.
This has been going on for days now and despite the rally into the close yesterday, it looks likely to carry on today. That said, one thing we’ve learned from the last week is that opening levels aren’t necessarily an indication of how the coming session will go. There’s been so much whipsawing during the session that I wouldn’t be surprised to see everything reverse shortly after the open.
As it stands though, investors are very risk averse. Most eurozone bonds are really suffering today, with peripheral debt taking a particular beating. I’m sure people will cite many reasons for this in the coming days, such as the slight upward revision in the core CPI reading but I think this, like most other excuses being used for the market sell-off, is nonsense. This has been in the works for a long time because the market has been overly inflated and the time has just come for them to correct.
Yesterday, the S&P came within 0.1% of achieving a 10% sell-off from the highs reached a month ago, which is what many people have been saying is necessary for so long. The Dow is lagging behind the S&P slightly, having fallen just over 8.6% from its highs during yesterday’s session, before recovering, which suggests there may still be a little downside to come. Regardless, we’re now close to some very interesting levels because if the indices comfortably surpass the 10% correction mark, it will prompt talk of a much larger correction and even an end to the five year bull market. That won’t exactly help with the fear aspect that has been so apparent in the markets recently.
The problem we’re facing right now is the opposite of what we had a year ago. Absolutely everything is being seen as a reason to sell, whether it be low inflation, poor data, ebola or poor growth in the eurozone. In fact, not long ago, low inflation and low growth in the eurozone was boosting the markets because it increased the likelihood of more monetary stimulus. As for the poor growth aspect, the US and UK is actually growing at quite an impressive rate while the eurozone has been hit and miss for years. I’m not buying into these excuses, I think it is just an overdue sell-off and pretty soon, we’re going to see investors look at valuations as a bit of a bargain.
Earnings season could play a big part in the market bottoming out because if companies are performing well and giving positive outlooks, it’s going to make people question why they’re still selling. Not a lot has been said when it comes to earnings season so far as people are too busy trying to work out why the markets are collapsing around them. I remain convinced that will pass and earnings should provide the lift the markets need.
Economic data doesn’t appear to be able to do anything to support the markets right now. Good numbers get ignored while any slight miss prompts more selling. There are a number of pieces of data being released today throughout the morning of the US session so I expect a lot of volatility during this time. We’ve also got jobless claims and industrial production figures ahead of the open which could have a big impact on the opening levels, as could Dennis Lockharts speech half an hour before the opening bell. We’ll also hear from Narayana Kocherlakota and James Bullard throughout the session, who may attempt to calm the nerves in the markets and slow the decline.
The S&P is currently expected to open 27 points lower, the Dow 178 points lower and the Nasdaq 66 points lower.
Published On Thu, Oct 16 2014, 10:53 GMT