Sunday, December 16, 2012

Stock Market update 16 Dec 2012


Another interesting week on the markets where the U.S. struggled while the rest of the world advanced.

-Emerging Markets (EEM):  +1.39%

-Pacific Markets ex-Japan (EPP):  +0.66%

-European Markets (IEV):  +1.67%

-Japanese Markets (EWJ): +0.16%

-U.S. Total Market (VTI): -0.21%

The past week the FOMC meeting took place and a new QE plan was announced.  Without going into the details, essentially the plan adds direct liquidity to the markets (pure "money printing" as opposed to the plan it replaces which was essentially "money swapping") to the tune of $45 Billion per month.  This takes the total FED money printing to $85 B until the FED is satisfied the unemployment rate has decreased to a level it is comfortable with (6.5%) or inflation rises to a level it is uncomfortable with (2.5%).

In the past such liquidity announcements have resulted in a significant rise in equity markets and a plunge in the USD.  Not this time (note the weekly changes in the major U.S. indexes and the USD):

DJIA:  -0.15%

S&P 500:  -0.32%

Russell 2000 Small Cap:  +0.18%

Nasdaq 100:  -0.37%

USD:  -1.04%

Given this VERY aggressive stand by the FED it would have been expected the markets would be up 2%+ this week (and the USD tumbling).  That this did not happen is very concerning and needs to be watched closely into next week.

On a bright note, the proxy ETF for the Emirates Provident Fund (ACWI) continued to do well last week with an advance of 0.40% (click on image below to enlarge).

It is interesting to note price attempted to break above previous resistance and was unable into the end of the week.  The U.S. market drag is obviously having an influence on equity funds based upon global asset allocation and it must be assumed should the U.S. continue to decline at some point this will be reflected in the asset prices of non-U.S. markets.  Alternately, should the U.S. sort out the "fiscal cliff" issue I would expect a significant rise in all equity markets.

Bottom Line:The equity markets continue to be held hostage by the fiscal cliff debate in the U.S.  and until there is some clarity it is pointless to lean either bullish or bearish.

Markets that rise on "bad news" are very healthy; those that do not rise on "good news" are suspect.  The fact U.S. markets did not rise this week on the very aggressive moves ("good news") by the FED is cause for concern.

It could just be the "fiscal cliff" issue holding things back or maybe something more.  In any case, it is not wise to take new positions until some clarity comes out of the current mess in Washington.  Therefore, I suggest continuing current equity holdings (and not adding to equity holdings if you are in cash or under-invested in equities and looking to make a switch) until clarity comes out of the current political negotiations.

As of today I remain in a 50% Equity/50% USD Cash position as I indicated in my last post:

-Russell Global 90 Fund: 40%

-Fidelity International Fund: 10%

-Russell USD Liquidity II Fund: 50%

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