Regardless of U.S. GDP, Equity Bulls See a Win-Win in their Future
(eToro Blog) Later today, the U.S. Bureau of Economic Analysis will release its first read on U.S. first quarter GDP. Some analysts have recently lowered earlier estimates, with the consensus now forecasting that GDP on an annualized basis will be reported at 2.5%, down from 3.0% in the previous period. The slight downgrade in the reading is based primarily on recent economic data that was weaker than anticipated, first and foremost among them the surprisingly poor outcome in March NFP data and more recently an uptick in new unemployment claims.
Earlier this week, the U.S. Federal Reserve Bank said that on the whole their outlook for the U.S. economy was slightly improved but that they would watch for signs of trouble and react appropriately. If today’s data comes in below expectations, it begs the question is that the kind of troubling sign that the Fed will be looking for?
U.S. equity markets were at first disappointed with the Fed’s recent announcement, but recovered quickly enough, helped along by Apple’s incredibly robust earnings news. On Thursday, Wall Street closed higher for the third consecutive day with the DJ30 gaining 113.90 points, the NASDAQ climbing by 20.98 points, and the SPX500 edging 9.29 points higher to finish just off the 1,400 mark.
Indices trader jaegermeister1 from Germany earlier posted a 13.64% profit on a closed short in the DJ30. Over the past six months, this trader has shuffled his portfolio and appears to be finessing his strategy; at three months, he had a 20.6% allocation in the Dow which provided him with a 10.6% gain, the highest among all instruments traded. Within the last month, the allocation to the Dow has been whittled down to 16.4%, but the gains have improved to 13.6% and remain the highest among all indices traded, which includes the DAX and FTSE. For the month, this trader’s P&L stands at 56.2%.
OpenBook trader heimmy, who is already posting a 125% statistical profit for the month, benefited from the 3-day long Wall Street rally; three long positions in the NSDQ100 have provided this trader with gains of 98%, 34% and 44%, par for the course given this trader’s records for trading the tech-heavy index. Over the past six months, he earned a 45.7% gain on a 10.4% allocation; however, in the last month he has increased the allocation in the NSDQ100 to 32.2% and for his efforts is posting a gain of 55.3%. This trader thus far has two copiers and only a single follower, but anyone looking for a NASDAQ guru might consider following this savvy trader.
Trader cong44, who has a monthly recorded P&L of 88.4%, has been paring down his portfolio over the past several months, and more recently devoted a large portion – some 65% of it – to the SPX500 which has provided a gain of 17.1% in the last month. Of three short positions that were closed yesterday, a single loss was more than offset by the other two’s profits, the net among them a decent 20%.
Despite the recent rally, investors want to know what’s in store for Wall Street in the months ahead. In a recent interview, Jim Haynie, a senior equity portfolio manager with BNP Paribas sees a great value in equity markets, whether it extends out to two years depends on what is seen between now and then, including underlying fundamentals. On the whole, he expects Wall Street will be higher by the year end and points to a number of things which ultimately support a bull market, including healthy corporate financials, a potential turnaround in housing, and the emergence of the U.S. as a leader in oil exploration.
Analysts have said that the recent market consolidation was not entirely unexpected, coming months after the massive and steady rally which began last October. But investors worry that the consolidation portends a bigger correction, though they hope it is but a temporary blip which will eventually usher in an uptrend. The bearish contingent argues that the U.S. economy seems to be mirroring the downtrend that occurred during both of the last two summers, and coupled with what appears to be a weakening labor market, the crisis in the Eurozone and a global slowdown, it does not bode well for equities.
In the bulls’ camp, it’s a simple analysis: the headwinds are temporary, and debt deleveraging will result in a strong overall economy. And the ace up the bulls’ proverbial sleeve is this: if they’re wrong, the Fed will play the role of the white knight, and step in and print more money, so for the bulls at least, the longer term equities outlook is a win-win.
Copyright 2012 eToro BlogNote: Past performance is not an indication of future results. This post is not investment advice. CFD trading bears risk to your capital.