Bull Run or Bear Trap
By Nikolay Mal’tsev, Columnist
Investors continue to enjoy the ride on the stock market as securities continue to climb. Moreover, fewer and fewer bears remain as the Dow has touched the 13 000 mark and the S&P is up by over 8% year-to-date. However, those with the “glass half-empty” view also have strong reasons to be less than optimistic about the situation.
United States equities have performed excellently since the beginning of the year and those who have invested have fewer cash funds. Aside from retail investors, there are plenty of institutional investors who remain on the sidelines considering how to approach the market—there is only one way and that is with caution. One investor says that “the market has gone too far too fast” and advises to seek protection on current investments.
Tuesday, February 21st marked a great relief for the global markets as the Euro zone finance ministers secured the new bailout for Greece of €130 billion. Nonetheless, the situation is very unstable and completely unsustainable, as the country has become so dependent on bailouts. Economists agree that the ability to recover and avoid default seems to be less likely in the long term. The strict austerity measures in place are set to reduce Greece’s debt-to-GDP ratio from 160% to 120% by 2020. What is strange in this situation is that the tight fiscal measures that are “suggested” (forced) by troika (the European Commission, the International Monetary Fund and the European Central Bank—three powers that advise Greece on financial issues) squeeze the economy. Protests have become more frequent as the unemployment rate hit a record high 21% and the citizens have very little confidence in their own financial system.
Another concern on the global stage lately has been the price level of oil as the Iranian conflict with the Western world develops. Brent crude has crossed the $120 mark since Iran stopped exporting oil to Britain and France in the second week of February. The four million barrels that Iran produces daily represents roughly over 4% of global production and may severely impact every economy, as oil is an important input in production. The news is affecting the aviation industry, sending stocks down.
The American economy is certainly improving, giving way for bulls to collect quick profits while bears are nervously watching for negative data from the other parts of the world. The market remains in a very interesting position with relatively cheap stocks based on their low ratios, yet it should be observed objectively and potential protection should be secured.