Now comes the tricky bit — will the six-week rally totally unwind? Will the S&P 500 plumb the depths below its March low of 666? In a nutshell, I suspect we won’t because the economic data is improving and the guidance from both IBM and Texas Instruments raised hopes that a second-half US recovery will emerge.
My one proviso is that nothing out of the box such as the Lehman Bros collapse comes along to spook the market. This is a lower order risk nowadays, but the concerns over European banks exposure to Eastern Europe could be a potential market crusher. Against this, the European Central Bank has been telling us that it is planning some non-conventional methods to stimulate the Eurozone and this will be revealed in May.
Also in May we will get the results of the stress tests on US banks and these could raise some concerns about the solvency of many of these banks. Rumours say 16 out of the 19 banks tested were technically insolvent, but this is typical of many banks in a deep recession.
The market was worried about Bank Of America’s troubled loans despite the bank reporting better than expected. There were also concerns over the Government deciding to convert preferred stock in bailed out financial institutions into common stock, which looks like a backdoor nationalisation.
The Oz dollar, which now tracks Wall Street, was down to 69.67 US cents and we can expect a sizeable sell off of the stock market here today.
This will be an interesting week with earnings and economic data bound to affect share prices.
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