Monday, September 22, 2014

Rough day for equities

Was today primarily an effect of Alibaba share digestion, and the resulting liquidity pressures on the rest of the market.  Was it also a result of the Iphone 6 introduction being completed.  What more is there to look forward to?  That thought could most explicitly be seen in Yahoo shares, falling almost 8% in the last two market days as its role as an Alibaba surrogate ends.

Certainly the significant downturn in small caps suggests a liquidity squeeze broadly impacting the market.  Today's current news included disappointing weak data from the U.S. housing market and a rejection by China of the need for any economic stimulus for their economy.  Fears of a growth slowdown there are either overblown or ignored by the government that controls released data.

The question in the first paragraph here, "what more is there to look forward to", is the key to the broad market lethargy today.  The stagnation in Europe's economy at the moment, with Italy moving back into recession, France flagging, and leader Germany barely keeping up with diminished growth expectations, weighs on the market.  So does Japan's seeming retreat from improvement with Abe facing a crucial test of his economic policy in the coming weeks.  Emerging markets offer no relief and remain the weakest link in the global economy, with Brazil on the ropes, Latin America in general showing declining growth, India having already priced in any improved prospects from Modi's ascendance, and emerging markets across the board being viewed by investors as vulnerable to any U.S. rate hikes.  Whether one agrees or not, the market is nervous.

If the above is correct, in a few days the market downturn will become muted.  We can only wait.


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