Market commentary: Is global economy strong enough for interest rate hike?

US stocks have been performing rather well over the past few trading sessions, rallying despite a disappointing Jobs Report on Friday, and extending gains on Monday, with the S&P 500 posting on of the longest winning streak since the beginning of the year. 

Although the past few days have provided equity markets with some needed relief, investors continue to weight concerns over the real strength of the global economy and its ability to continue to grow over the next 12 to 18 months.

This morning, unexpectedly disappointing economic data released by Germany prompted investors to take a pause after yesterday’s rally, as traders pondered whether capitalize recent profits into cash, or remain invested in the market. The data released today showed that even Germany, Europe’s largest economy and economic engine of the Eurozone, is exposed to a potential global slowdown led by widespread commodity weakness and a struggling Chinese economy.

The disappointing German Factory Order data, which unexpectedly declined in August, is the second cold shower, after last Friday Jobs numbers, for optimistic investors who were hoping to ride an upward trend while waiting for the next pivotal FOMC’s meeting scheduled in December.

With economic data releases coming in weaker than anticipated, markets are expected to remain volatile, as some analysts and money managers do not see markets exiting the recent correction any time soon.

This view is, shared by prominent fund managers and bond trading pioneer Bill Gross, who as recently as last week, stated that in his opinion US equities are likely to lose another 10%, unequivocally entering a bear market, dragged down by disappointing economic data and flat-lining earnings, which will be penalized by a global slowdown and a strong dollar.

Mining, energy and commodities names are supporting the idea that market volatility is here to stay, as stocks in these sectors seems to have been riding a roller-coaster, with the S&P 500 Energy Sector Index plunging 93 points, losing close to 18% in August, despite rebounding in September, adding 51 points and closing yesterday 11.8% up from the lowest closing recorded on August 25th.

An emblematic example of the current volatile environment can be found in Glencore Plc, one of the world’s largest commodities conglomerate, whose stock price, although plunging over 28.5% Monday last week, following a broker’s negative report, paired almost all losses throughout the week, and yesterday closed 18.29% higher.

While long term value investors are likely to find interesting opportunities at attractive valuations, investors looking to capitalize on sizable price swings should exercise extra cautiousness, as stock markets recently appear to have been behaving as a casino’s roulette.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.