9:00 am Tuesday June 16, 2009
Everything was down overnight. New York stocks were down over 2%; European stocks were down even more, around 3% in the majors. The only trade that was up was the volatility index, the VIX. This index prices the volatility expectations on the S&P Index which is the broad measure of U.S. stock market performance.
Why is this significant to us?Well, investment sentiment is normally influenced by the biggest players in the market. Since absolutely all players look at New York to set the outlook, when those guys start to get really jittery, the rest of the world take notice. When the volatility index goes up, this indicates that the big players are starting to hedge their bets against potential market declines.
Of course our market can have a life of its own, but it is never wise to neglect other markets. Investment capital is like water; it can seek its own level and the global market is one that is wide open. Even we we look at the nearby bond market, the FXTNs, yields have now gone up over 30 bais points across the board. The long end of the curve has steepened just as it has in other government bond markets in the rest of the world. Things will likely be shaken up soon. Our stock market has been very stron and impressive indeed; not just in then last few months, but from when the global markets tanked in around October last year.
I believe that the market will provide its own adjustment because that is what healthy and fundamentally strong markets do. When that happens, and I believe it will be sooner than later, then we will have greater heights to look forward to. In the meantime, I would recommend taking profits on most anything, even TEL, GLO and especially MER.
Have a good one.