Central banks across the globe have reaffirmed their commitment to their historic monetary easing policies. Last week we said “the bulls still appear to have the upper hand in the equities markets” and it seems the bulls have won their battle with the bears in the first two months of 2013, as markets globally continue with their best start to the year in decades.
The bears have made their presence known though, with volatility on the rise over the past fortnight, as the CBOE VIX volatility index in the US had its biggest single session spike since August 2011. Protection is still cheap and it is time to protect your portfolio, if you have not already done so.
Markets remain at multi-year highs and in Asian trading volumes have improved. Market volatility is rising, as investors are becoming nervous over the strength of the markets since the start of the year. The Australian market rebounded from its biggest fall since last November and is trading at 53-month highs. The commodity markets remain under pressure, which is in turn dampening the prospects of our mining sector.
In today’s Analyst’s Eye, Investors – The Results Are In!, we highlight some of the key results from the reporting season which is coming to a close.
US stock markets remain at 5-year highs, after the Federal Reserve Chairman reaffirmed the Fed’s commitment to QE3++ and the “Bernanke Put” is firmly in play . For the month the S&P500 rose 1.1%, up for a fourth straight month. Buyers have pushed stocks within striking distance of all-time highs this week. The S&P500 is still up 6.2% this year and is within 3% from all-time highs and the Dow Jones is around 1% from all-time highs.
The reporting season is nearing an end, as for the S&P 500 companies that have released quarterly results 3 in 4 companies have beat profit estimates, according to Bloomberg data. Trader sentiment was boosted as the Commerce Department revised its GDP figures to show growth at a 0.1 percent annual rate, up from a previously estimated 0.1 percent drop. Also business activity in the US expanded unexpectedly in February at the fastest pace in almost a year.
US housing improved more than forecast in January, signaling that the housing sector remains strong, while US orders for durable goods climbed in January by the most in a year, proving business investment is holding up. Investors are facing the looming “sequestration” due to start tomorrow, where federal spending will be reduced by $US85 billion in the final seven months of this fiscal year and by $US1.2 trillion over the next nine years.
European stock markets finished the month higher, as the ECB reaffirmed its commitment to monetary easing. The Europe Stoxx 600 ended up 1% for the month, recording a ninth month of straight gains, its longest winning streak since 1997. ECB President Draghi has signaled the central bank has no intention of tightening monetary policy near-term, as inflation is projected to remain well below its 2 percent target next year. The ECB President said the ECB is comfortable that the balance sheet may shrink naturally as confidence returns to financial markets and banks repay emergency loans, while elsewhere it appears that Italy is headed for a broad coalition government. The European Commission data confirmed economic confidence in the eurozone increased to 91.1 more than economists forecast in February (up from 89.5). This confidence data pushed the German stock market higher, after previously falling the most in three weeks.
Asian stock markets rebounded strongly yesterday, with the regional benchmark index recording its biggest jump in over five months, after US and Japanese economic data boosted confidence in the global recovery and as the Japanese Prime Minister nominated a new central bank governor. The MSCI Asia Pacific Index is trading around its highest closing level since August 2011 as buyers stepped in on the back of the Bernanke Put confirmation. Of the almost 400 companies on the MSCI Asia Pacific index that have reported earnings so far this quarter, about half have exceeded profit expectations, while half missed sales projections, according to Bloomberg surveys (compares with 75% of S&P500 beating on profits).
The Chinese stock market rebounded for its biggest jump in a month, led by the industrial and property sectors, as some high profile Asian companies traded higher after releasing better-than-expected earnings reports, with the Shanghai Composite still up 4.4 percent for the year, but has fallen 2.7 percent after rebounding nearly 24 percent from its lows in December. In Japan the market jumped up for a seventh month, its longest winning streak since January 2006, as a report showed Japanese industrial production rose for a second month in January and the Japanese market is still around highs not seen since September 2008, as traders had pushed shares on speculation that the new BoJ Governor will be more accommodative. Chinese PMI data is due out today.
The Aussie market has exhibited some volatility again this week, but is now trading near 53-month highs. The ASX is continuing its consistent string of gains up for the thirteen of the past fifteen weeks, with the All Ords hovering around the 5100 level. The ASX200 market has tested the 5100 level near-term and appears to be consolidating above the 4980 level near-term, as traders are exhibiting some indecision near-term. It has been a busy week for corporate reporting and we discuss this fully in today’s Analyst’s Eye.
Key levels for the ASX200 index next week will be 4980 and 5130, with 5000 the key short term pivot level. Volatility is picking up, but is still relatively cheap and affords cheap protection for your portfolio. Traders are starting to be more cautious given the spectacular run in stocks this year.
Investors can have cheap insurance for their portfolio and could look to put their money to work while reducing their risk by using options and warrants strategies. Remain attuned to the news from overseas, particularly from the eurozone (earnings), China (PMI) and the US (sequestration). Monitor the US dollar for a guide to the future direction of commodities and equities prices.
Contact D2MX Advisory on 1300 610 024 and we can help you trade, using a number of strategies that will give you the tools to navigate this market and help you improve your returns on investment.
Michael Hevern
Investment Adviser D2MX Advisory
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.
