The financial market is down globally by a significant amount today. Does that indicate a bear market ahead?

 

The US Economy

Is the drawdown today indicative of a bear market?

• Market started sliding after the FOMC meeting.
• Stock futures continued the slide overnight as we see disagreement in the US House
• HSBC reported China manufacturing declining for the third consecutive month
• Leading indicators +0.3% in August
• Fedex reported lower forecast for the upcoming quarters, but is not expecting a recession
• The operation twist is not good for US banks’ profitability
• Stocks enter bear market worldwide
• After the close, Nike reported better than expected earnings with strong backlog. NKE up about 5% after market.

The bottom line

It looks like the uncertainty with the banks is driving the market. Uncertainty of the congress passing legislation is another factor. Next week, we are into the month end and a trading rally is possible. But over the longer time horizon, uncertainties remain. And we can see the market going down lower. This will probably be more apparent when the next round of earnings reports commences in October.

 

The European Economy

IMF meeting in progress, EU will speed up recapitalization for banks

• Greek bond swap may have reached 85% agreement, where 90% is required by the government
• On the positive side, Ireland GDP rised by 1.6% for Q2, exports increased by 23.9% YoY
• A lot of rumors about European banks in trouble, EU pledged swift recapitalization for 16 banks.

The bottom line

 The concensus believe that it is the eve of a financial crisis in Europe. The authorities especially the ECB has the muscle to fix this problem, similar to what the US fed did back in 2008. The quesiton is the timing. When will they announce lower interest rates and special funding for the banks.

 

The Canadian Economy

Canadian economy still slow

• Retail sales data reported -0.6% MoM for Canada
• The Canadian dollar broke par and traded at USD0.97 today

The bottom line

The market today just show a slowing economy in Canada. Given the current conditions we do not see a rally in the near future.

 

The market today

The market is down almost 8% since last Friday’s closing, which would indicate an oversold condition, and a technical rally. But the general sentiment is still negative. It is dangerous to sell on rallies because if the ECB comes up with a stimulus plan, the European market as well as all markets will react very quickly to the upside.

We have been hearing about double dip and global recession, but have not seen the statistical indicator just yet. Therefore if the numbers reported in the upcoming quarter do show a global recession, then we would expect further decline in the market.