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Christian Hviid
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An Investment strategist with multi-billion dollar portfolio management experience managing active Absolute and Relative oriented strategies in Unified Managed Account and Separate Account settings. Cross functional expertise covering asset allocation, risk management, manager and investment due... More
My company:
Point Guard Capital LLC
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Seeking Alpha Instablog
  • Market Balancing Act 0 comments
    Apr 30, 2012 11:13 AM

    Equities have benefited from strong momentum since October of 2011. However, markets recently experienced a hiccup at the beginning of April much to do with European headlines, China growth moderation and trimmed U.S. earnings expectations. Equity prices have since started to test some key technical metrics such as the 50-DMA and so far have managed to hover above it, for now. Lower high formations may become worrisome if they can be corroborated by fundamental metrics that indicate further growth moderation and a discernible trend can be ascertained.

    (click to enlarge)

    Source: stockcharts.com

    I fear that once we get past the earnings season that the market will gyrate more in sync with the macro outlook and headlines. This may lead to increased volatility given the mixed economic metrics we are currently experiencing. Markets have a few tailwinds that can help prop up risky assets. The current low interest rate environment which is conducive towards risk taking, equity valuations appear to be reasonable in the context of a longer-term investment horizon and the potential for further Fed intervention may offer the so-called "Fed Put" which may help offer market support. On the opposite end of the macro scale we do have a few headwinds to contend with. Slowing earnings growth could be of concern if it is sustained, the uncertainty as to the sustainability of Chinese economic growth needs to be monitored, Europe will likely continue to show weakness and the Fed's "Operation Twist" is expected to end this coming June.

    (click to enlarge)

    Source: Point Guard Capital LLC

    One of the weakening signs that the current earnings season has given us is the lack of robust top-line growth. Much of the earnings growth has continued to be "engineered" through margin expansion which is at cyclical peak levels as there may not be much room for further cost cutting measures. So if markets have been fueled by continued earnings momentum, the fact that this momentum is waning may suggest some caution ahead. Austerity is rampant across much of the Developed world. European as well as U.S. government spending is showing contraction. Business investment has started to experience some weakness and consumers are sacrificing savings for current consumption. All some trends that may not suggest sustained robust economic expansion.

    As time passes in the near-term, the macro scale may start to be tipping in favor of risk reduction strategies.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. The views and opinions are the author's only and may or may not reflect the views of Point Guard Capital LLC.This document is for informational purposes only and is not, and should not be construed as, an offer or a commitment to enter into a transaction, nor is it professional advice.This information is general in nature only and does not take into account an individual’s personal circumstances. All opinions expressed in this document are subject to change without notice. The author does not accept any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.

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