Equity markets strategists are having difficulties finding a reason for the rally in the markets. The 13% rise in the S&P 500 represents the highest market premium at this time of year in any year since 1999.
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With earnings being hit by the slow economy, the upcoming elections in the US, and the continuing uncertainty in Europe, strategists are warning investors that significant volatility could lie ahead.
The strategists come from 13 firms that are tracked by Bloomberg. The market’s advance is now about 2.1% ahead of their forecasts and the forecasts have come true each of the past three years.
They cite the ongoing problems in Europe, saying no matter how appealing the rhetoric is from the European finance commission or the European Central Bank, Europe is still a long way from solving its problems.
They predict the slowdown in China’s economy, continued unrest in the Middle East, the possibility of a recession in Europe that would hurt the US economy, and the increasing likelihood of the fiscal cliff will keep markets volatile for months to come.
As investors come back to the markets after being away for the summer, activity will increase, causing wider moves on whatever news erupts from any of these scenarios.
But not all analysts agree with the strategists’ forecasts. They say that the markets have already factored in these issues and, as the economic rebound strengthens, there’s plenty of room for more upside.
Most seem to be relying on global central banks’ willingness to support recoveries in their respective economies by standing ready to take whatever stimulus action may be needed.
Although the strategists have been correct for three years in a row
, none of those three years has seen the combination of events that are present this year, particularly with the presidential election as the primary differentiator.