Traders are torn apart by both bears and bulls
There are quite a few things going around these days.
1. Correction
Yes, it was long over-due, but technically the correction was “overdone” itself, and short covering and re-bouncing are becoming overdue as well, at least short-term;
2. Near term issues
Is “credit crunch” going to happen causing a recession?
Itraxx crossover 10Y is today at 340, back to 0305; DJCDXNI is 36.25 today, up 6.59%.
Are earnings growth going to slow even in goldilocks?
Per briefings.com, Profit as % of GDP profit margin (profit’s % of GDP) is going to contract back to historical norm of 10%, from current level of 12.5%, and S&P annual profit growth is going to be reduced to 1% from 5%, even in a goldilocks economy.
“Those assumptions produce a total return over the next five years of about 11%, or about a 2.2% annual rate of growth in the S&P 500 index. With dividends, that is about a 4% annual rate of return. In order for the S&P 500 to rise at a 6.8% annual rate, profit margins would have to hold at current high levels, and the P/E multiple would have to expand to 17.5.”
3. “Safety heaven” too expensive
10 Y T yield is about 4.5% today, almost all time low YTD, and it seems nobody is interested in gold, oil and other commodities.
All these forces could convolute in one trading session like today. Traders got to be careful: ride the main trend and don’t sit on it too long.
marketreflections.com for further info.
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