STOCKS:
The world economy is weakening: the U.S. payroll tax increase and “sequestration” are pressuring the economy. China is being pressured by Japan, and has “dampened” the housing market. The eurozone is seriously contemplating loosening up their austerity plans. Although we feel that risk is being mispriced at current levels given recent pressure upon world economic figures and the developing pressure upon corporate margins/ earnings — the consensus is that the world’s central banks will save the day.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1320. The standard 200-dma support level at 1490. Perhaps more importantly, the distance above the 160-wma has grown to +25%...which now means that a “bubble-like” rally is developing, and we can see sharp gains such as the 1986-1987 and 1995-2000.
World markets are rather “mixed” this morning. Japan’s NIKKEI rose a very sharp +4.9% on Prime Minister’s Abe’s move to allow pension funds to invest more of their funds in the stock market, and a proposed move to remove various investment-related taxes. This, when coupled with a report that Japan’s economy is surging more quickly than expected is giving rise once again to a weakening Yen and a surging NIKKEI – are giving rise to “risk-taking.” However, this hasn’t translated into gains in other parts of the world, as Germany is the only European nation of consequence that is higher by nearly +1.0%. The southern periphery countries such as Spain and Italy are lower. Italy’s GDP fell in 1Q by -0.6%, a bit lower than expectations of a -0.5% decline.
To Read the Entire Report Please Click on the pdf File Below.