The Weekly View: Acknowledging the Risks
Stock prices reflect difficult times but not a 2013 global recession, in our view. We think the probability of a 2013 global recession is around 30% to 40%, i.e., not our base case but high enough to be taken seriously. Thus all of our portfolios are underweight beta relative to strategic benchmarks by about four percentage points, and we are willing to take further defensive action if we change our economic outlook. For now, we maintain our view of a 1240 to 1290 floor for the S&P 500 this summer and upside to 1450 over the next six to nine months.
David Fuller's view Many investors
are nervous, remembering what happened this time last year. The S&P 500
Index (weekly & daily)
was firm for most of July before commencing what Fullermoney described as a
short, sharp statistical bear market.
Could
it happen again this year?
Statistically,
yes, and in 2012 we do not have to look too far for reasons - global GDP growth
is somewhat weaker; China's growth engine is sputtering, and Europe's outlook
remains problematical, to put it mildly.
There
are also some differences - in 2011 the S&P was testing its high for the
year, whereas it had completed a bigger reaction this year before commencing
the June-July recovery; currently, no central bank is in tightening mode but
Asia is increasing its stimulus; commodity
prices are lower, US grain and bean prices excepted.
Subscribers
may cite additional factors and while these differences may or may not favour
the bulls, you and I can monitor recent support levels. Looking at the daily
chart above for the S&P, we cannot have a reaction of any consequence without
first taking out the last low near 1325. A break under the next low near 1309
would retrace just over half the recovery from the June low, indicating that
selling pressure had regained the upper hand. However, I maintain that it is
the early-June low near 1266 which is most important psychologically. If that
cannot hold sentiment really will deteriorate.
Meanwhile,
demand still has the upper hand, marginally. Therefore I would not worry about
the sell-off that many people are expecting, until or unless the S&P at
least breaks its last reaction low near 1325.