The bears are having their overdue picnic but it’s no feast with volume only light. We are in the pullback phase and after markets have risen so strongly since early March, this had to be expected. The question is how deep will it fall?
It was not all gloom, with some better than expected housing starts news and benign inflation indicators surfacing. However, industrial production readings were down which did not help market sentiment.
Not surprisingly with stocks on the block, the VIX or fear index, which measures market volatility, rose 5% to 32.5.
There are concerns that the G8 decision to reduce government stimulus could be a little premature and that could slow down any recovery. Some think we will see a W-shape recovery — down then up then down then up again — but optimists see it more as a U-shape with a longer bottom which is stretched out before the rise. The US consumer will be critical to a more optimistic scenario.
To end on a cautious but positive note, I like this survey/report from Barclays Wealth and The Economist Intelligence Unit, which found “high net-worth investors across the globe say they are seeing significant investment opportunities in the current markets, but most are still too nervous to take the plunge.”
Also a recent survey of a big number of economists found 90% expect a second-half economic recovery for the USA.
With Wall Street down, the Oz dollar is also weaker at 79.39 US cents.
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