Editor’s note: This article was first published in April 2013. The market commentary refers to that moment, including the expected 3-5% correction, the Fed tapering rumours, the quarterly outlooks and the IBEX 35 levels of 7,500 and 7,200-7,000 points.
The correction many expected in the S&P 500 and the Dow Jones may have begun. Next week will be crucial, with results from big blue chips such as Alcoa (on Monday), JPMorgan and Wells Fargo. On Friday the US publishes its retail sales figures, which will show whether the tax increases have hurt consumer spending. The jobs data also came in worse than expected, and the indices reacted immediately.
If the US indices haven’t fallen even further these days, it’s because the Fed still has its foot flat on the accelerator, although rumours are already circulating that it could start scaling back its asset purchases this summer, several months earlier than the markets expect. Corrections of between 3% and 5% are expected in the S&P 500 and the Dow Jones, which wouldn’t be tragic and would be perfectly normal for a market that has been climbing freely. The problem would come if the correction drags on.
A second quarter of generally poor data is expected, because the global economy is still very weak, if not stagnant. What happens over the summer is anyone’s guess, although many economists predict we will keep seeing poor economic data in the third quarter, and that by the fourth quarter better figures may arrive and lift stock markets around the world (or maybe not).
Extra problems for the markets
The threat from North Korea shouldn’t be a reason to get out of the stock market, although if they do carry it out, the situation would undoubtedly cause panic in the markets, because stock markets don’t like wars.
The new bird flu virus is already hurting tourism in China, and if it isn’t brought under control, China will suffer incalculable losses in consumer spending.
And in Europe, on top of catching all this global data, we have our own particular “Via Crucis”, with bad economic data that may keep churning out over the coming quarters.
IBEX 35
For Spain’s benchmark index we have three forecasts. The most optimistic is that it heads to the 7,500 zone and finds support there again. The most likely is that it keeps falling to the 7,200–7,000 point zone if the global data turns out negative. And in a more pessimistic forecast, our index could behave much as it did in 2011, when, with a bit of luck, it could enter a new upswing in the fourth quarter — although for that to happen, good data would have to come along with it, including a fall in unemployment.
As you can see, we don’t even need to mention Cyprus to raise economic doubts. So keep an eye on next week, because it will tell us how the global indices are going to behave over the following five months.
Featured image: Cbaile19, CC0 1.0, via Wikimedia Commons.
