Friday, 20 July 2012

Mike Lenhoff: Wall of worry helps equity markets

This has been a busy week for earnings results. For the US, more than a fifth of the S&P 500 has already reported and the message is not unexpected. Not only has the slowdown throughout the global economy registered in a loss of earnings momentum, but the second quarter is stacking up to be the weakest quarter for earnings growth since the recovery from the financial crisis.

Moreover, the risk ahead is that the prevailing uncertainties over the eurozone sovereign debt crisis, the US fiscal cliff and China’s own slowing economy lead to a further loss of earnings momentum and so remove all support for equity markets.

Yet looking at the chart, concern about the risks seems far removed. Since the start of June, the major equity markets have been recovering quite nicely from the sell-off in prior months. The S&P 500 is a mere 3 percent from its post-financial crisis high set this past April and that six-week channel of rising highs and lows highlighted in the chart suggests that the Index could be heading for a new peak.

As for the FTSE 100, the Index has managed to trade up to over 5,700 this week but there is resistance around this level. However, if Wall Street continues to make progress, so will the FTSE 100. More >

Mike Lenhoff
Chief Strategist

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