Market update
By Richard Hunter | 20 Nov, 2008
Perhaps the only surprise that global markets have taken another downward lurch overnight should be that it is a surprise.
The latest sell-off follows comments from the US Federal Reserve that economic growth is likely to be flat this year and may contract next year, even though US commentators have been debating amongst themselves for the entirety of 2008 as to whether the country is in fact already in recession.
Added to this are the current woes of the US car industry. The President Elect finds himself inheriting a potential political bombshell – does he listen to the proponents of moral hazard and let the “big three” of Ford, Chrysler and GM go to the wall? Or does he use some of the TARP (Troubled Asset Relief Programme) to prop up an industry which directly or indirectly is estimated to affect 10% of the US workforce?
Meanwhile, as we have discussed before, there are many countries globally (particularly in Asia) which rely on the US as an export destination, whilst this overall slowdown in demand has also fed through to the oil price and the previously unassailable mining sector via commodity prices.
It is difficult to see an end to this level of poor sentiment, which the bulls maintain is a good sign. Indeed, the so-called “Sage of Omaha”, Warren Buffett, recently repeated his investment mantra - “Be fearful when others are greedy and greedy when others are fearful” – announcing at the same time that he had begun buying US equities again.
The flight to the perceived havens of the likes of bonds and gold looks set to continue for some time yet, whilst the general level of risk aversion will continue to work against equities.
A positive catalyst will at some stage emerge and will likely take the market by surprise. Whether this is proof that there will be a coordinated global action plan coming out of the recent G20 meeting, whether further monetary (and fiscal) stimuli will show signs of early success, or whether corporate earnings begin to surprise on the upside, all remain to be seen.
It is impossible to say whether this moment will arrive in three, six or nine months or whether it is a year or more away. When it does come it is likely to be sharp and powerful and now more than ever investors need to keep a keen eye on economic developments and company updates since, as the old market saying goes, nobody will be ringing a bell at the bottom.
