With a lack of clear vision, markets around the world are fluctuating wildly. What is the cause?
Quite simply, the future economic condition of all the world’s economies has been brought into question. The recent credit downgrade of the United States debt sent shock waves throughout world financial institutions. This on the heels of what appeared to most to be an inept political system here in the US which was incapable of making the right decision, has shaken the world’s perception of the United States of America’s ability to do the right thing. Add a significant dose of uncertainty about the European banking system’s ability to cope with massive sovereign debt issues and you have the making of a “perfect storm”.
What happens next is anyone’s guess. For the Bears there is plenty to point at and support their views that this market will trend much lower. For the Bulls corporate earnings have never looked better. Ever. So which is it? In my opinion, until there is some resolution to sovereign debt issues around the globe and until we begin to see signs of economic growth, the Bears are right.
This increase in market volatility has reminded us that the markets can move significant distances in a very short time period. These wild swings with no apparent justification are cause for one to hedge their positions well. Until such time that there is clarity on these unresolved issues the market will continue to gyrate violently. This is no place to take a directional stand.