|
March 31, 2010 is a Key Date for the U.S. Economy and Stock Market
Michael Markowski
Investors should take notice that March 31, 2010 is a key date for the global financial markets for three reasons:
- March 31st marks the end of the quarter for all mutual funds, hedge funds, professional money managers and any other financial institution who manage money. Since the S&P 500 advanced by approximately 5% for the quarter I suspect that a lot of window dressing has been going on for the last two weeks and that the window dressing activities pushed the markets higher. Window dressing generally occurs at the end of each quarter (3/31, 6/30, 9/30 and 12/31) because those investment managers who underperformed during the first two and a half months of a quarter scramble to acquire the shares of the companies that performed best during the quarter. The theory behind window dressing is that a manager does not want to send their clients a quarterly report that indicates that the manager sat in cash while the market moved up or was fully invested when the market moved down. Therefore, window dressing activity at the end of each quarter tends to follow the directional momentum of the markets, which occurred during the first two and one half months of the quarter. The bottom line is that this window dressing and the cross currents it causes in the markets can easily mask the overall direction that the markets are moving. Investors who are risk averse should carefully monitor the first two weeks of a new quarter.
- March 31, 2010 marks the end of the U.S. Federal Reserves’ program to buy up to $1.25 trillion of mortgage-backed securities. After the global capital markets began to melt in 2008, the U.S. Federal Reserve entered into the markets and became the primary buyer of U.S. mortgage backed securities. The result was that it was able to keep interest rates at an artificially low level. With the Fed’s withdrawal interest rates are likely to move higher. This could further slow the recovery in the U.S. housing market and cause U.S. interest rates to head higher. Both could put significant pressure on the stock market. .
- March 31, 2010 marks the end of the tax credit program that has been in place for first time U.S. home buyers. With the 10% tax credit no longer in place the jury is out as to whether buyers who had been subsidized will continue to buy homes now that the tax credit is no longer available.
The U.S. stock market has not yet entered into the corrective phase and the lapsing of the Federal Reserve’s program to buy mortgage backed securities and the tax credit for first time home buyers definitely increases risk for the overall markets. Thus, investors should continue to be cautious. I also don’t believe that the Euro’s new 10 month low against the U.S. Dollar last week has been priced into U.S. equity markets because of the window dressing, which occurred during the last two weeks of March. I expect that the Euro will continue to weaken against the Dollar and that multi year lows for the Euro against all major global currencies could occur by the end of 2010. A weakening Euro will cause significant problems for U.S. manufacturers whose exports and increasing share prices benefited from a steadily declining U.S. Dollar between 2003 and 2008. For more information on why currencies will play a key role in the global stock markets over the next several years I suggest a review of my reports “Safe Haven Status of U.S. Delays Recovery” and “The Damage to the Euro has been Done”. For more information about the Super or Secular Bear market, which began in 2007 and will not end until 2015 at the earliest go to www.bearmarkettracker.com.
|
