Nicholas Vardy
The Global Bull Pulls in His Horns for a Possible September Pullback
Well, it’s now past Labor Day, and the most active time of the year for global stocks begins. As I pointed out in last week’s Global Guru, September tends to be the weakest month of the year, with stock markets losing about 1.3% on average. And unlike most market statistics you’ll see, this weakness doesn’t just apply to the U.S. markets. A recent Georgia Tech study looked at data for 18 stock markets around the world going back as far as 200 years. Among the markets examined in that study, on average, investors lost money in 15 of them during September.
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Signs of recovery in the global economy are getting stronger. The U.S. manufacturing sector grew in August for the first time in 19 months. Home sales surged in July to their highest point in more than two years. Auto sales — boosted by the "Cash for Clunkers" program — marked their first year-over-year monthly gain since October 2007. Today, government data is expected to show that orders to U.S. factories likely posted another increase in July. Finally, productivity is expected to have surged to an annual rate of 6.4% in the April-June quarter. That would make it the biggest quarterly increase in almost six years.
A Leveraged Bet on a September Pullback
Global markets have been losing their upward momentum in the last few weeks. August is the first month since March that emerging markets are likely to end the month down, if only slightly. August is also the first month that U.S. markets will have outperformed global markets in many months. But with most of the U.S. market’s volume concentrated in just a handful of financial stocks, there is a lot of smart money betting on a market downturn in the coming weeks. David Einhorn of Greenlight Capital, a multi-billion dollar hedge fund, has invested 25% of his fund into S&P puts, which is an outsized bet on a drop in the U.S. stock market over the coming weeks.
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Surprisingly strong sales and prices of existing U.S. homes; improving economic data from the eurozone; signs of robust growth from China and other parts of Asia; and a return of real (if anemic) growth to the economies of Germany and France all confirm that global economic recovery is on the horizon.
Bullish on the “Chinese Google”
Global stocks powered to a 10-month high in overnight trading after more data supporting a global economic recovery and reassuring comments last week from the world’s key central bankers. Sales of previously owned U.S. homes jumped 7.2% in July to mark the fastest pace in nearly two years, and there was a bigger-than-expected rebound in euro zone industrial new orders. Asian markets are up sharply overnight, and European shares also hit new highs for the year in this morning’s trading.
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The last couple of weeks in global markets have been all about retrenchment as markets consolidate their gain from the remarkable rub from early July. With markets down in Asia overnight, you can expect more of the same in today’s trading.