Stock Market May Need Relief
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
Stocks closed lower on Wednesday with the Standard & Poor’s 500 now down 2.60 percent over the past five trading days. This is the fourth time this year that the S&P 500 has closed below its intermediate-term trend, and the question on investors’ minds is whether there will be a quick rebound in the near future like we’ve seen three times earlier this year or whether the market has more downside work to do.
Some market indicators are becoming very stretched to the downside, which increases the likelihood some type of relief rally may not be too far off. However, these indicators come with a caution sticker on the bottom (OK, not really) that reads, “Oversold markets may continue lower.”
This Friday is the mother of all economic reports, namely the monthly employment data, which includes both the nonfarm payroll report and the unemployment report. Depending on the markets interpretation of the employment data, it could provide at catalyst for the market to make back some of its recent losses. However, failure for the market to rally on Friday’s employment data would be one more data point indicting that investor behavior is growing more cautious about the future.
China’s PMI for September came in at 51.1, unchanged from August. The underlying data from the report indicated that business confidence in China remains weak with downward pressure on its economic growth. The past few years, the correlation between emerging markets worldwide and China’s economy has grown. China’s stagnant economy appears to be once again weighing down emerging market countries as well as its own, with the FTSE China 50 index lower by 5.97 percent over the past five trading days.
Emerging markets have been hit the hardest during the recent pullback, with Brazil at the bottom of this week’s performance report. Part of Brazil’s problems seem to stem from its upcoming presidential election. A recent surge in the presidential poll numbers for incumbent President Dilma Rousseff appears to be driving its stock market lower, by those who believe another four years of Rousseff’s leadership would lead to rising fiscal deficits that could jeopardize the country’s investment-grade rating. The MSCI Brazil 25/50 index is down 10.44 percent over the past five trading days and lower by 22.38 percent over the past month.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.