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Market Round Up: November 12-16, 2012

Market Comments: Two weeks after the election, US equities have fallen 4.8%.

It should be noted that, according to the Globe and Mail, “The S&P 500 has suffered 17 pullbacks of 5 per cent or more during the current bull market, which began in March 2009. On average, declines have lasted 22 days, inflicted 8.3 per cent in damage. Each dip has been followed by an impressive rebound, which is why the index was near a five-year high before the most recent setback.” Remember, “the S&P 500 fell nearly 10 per cent between April and June of this year. And the index fell more than 19 per cent between April 2011 and October 2011.” These all turned out to be good buying opportunities.

Continued negotiations on the US fiscal cliff will be prominent. It is important to remember that it is in the interest of both political parties to compromise. In a lead up to Christmas, economic health will be measured by consumer purchases. Corporations, which often experience a seasonal bump in profits, will be important to watch.

International News: The members of the European Troika (the IMF, the EU and the European Central Bank) were at odds over Greek bailout funds. While the country was able to raise the required amount to avoid default, it continues to cause concern about its future ability to pay. As a result the FTSE 100 and FTSE EuroFirst 300 faired even worse than did North American Markets. The former lost 2.8% over the week while the latter lost 2.7% (its lowest close in over three months). This is on top of news that the eurozone GDP shrank 0.1% last quarter, a second successive contraction and putting it officially in a recession.

Last week, the China Leadership Congress ended with no real surprises in the outcome. The new, relatively conservative leadership will rule for the next decade under new leader Xi Jinping. Xi Jinping has arguably been groomed for this role, as his “father was a revolutionary hero alongside Mao Zedong and a powerful figure in the party” and he has been an active member throughout his life. He speaks of getting back in touch with the Chinese people and providing better wages and working conditions. Many political commentators have mentioned this appears to be a very conservative leadership, and caution that this is a step backwards for progressive forces.

Recommended reading: (The Economist – The Long Slump: Shall the twain meet?): “We are now in the middle of the fourth quarter of 2012. That means that it has been five full years since the American economy first tipped into recession amid a gathering financial storm… Five years later, only America has surpassed its pre-recession output… Japan had the worst recession of the bunch but rebounded quickly. It has since struggled amid seismic disasters and various China troubles. Britain and the euro area have until recently followed very similar trajectories, but British output turned up nicely in the third quarter while the euro area officially re-entered recession… The really distressing thing is to try and project these lines forward a bit…The euro zone has not grown for over a year, is almost certainly contracting faster in the fourth quarter than it did in the third and may well continue shrinking into 2013…”


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