The U.S. market has been on a roll and the rebound has affected global sentiment, including the Indian stock market. Yesterday (March 17), U.S. stocks advanced erasing more than half the loss in the S&P 500 since Obama took over. The trigger was a rebound in homebuilding and speculation that the Federal Reserve will increase the pace and size of a $600 billion program to purchase mortgage securities and other assets.
The news reports in the American press echo a sort of desperation for some good news. An article in Bloomberg quoted a money manager saying that the mere fact that negative news has stopped, allowed the market to come back to a reasonable level. His view was that the market was depressed to an extreme level because of the constant stream of bad news and events. So this has been a welcome change.
CNBC quoted another who said that the market could simply no longer stand the “gloom and doom anymore and it’s time to look for something, anything, that looks better.”
So what has been the good news? Retail sales posted an unexpected gain of 0.7%, a fairly decent figure for a recession. GE announced its credit rating had fallen to AA+. The sentiment was that it could have been worse and the company can continue to conduct business despite deep troubles with GE Capital. Citigroup announced that the company was profitable this calendar, so far. So even if the company has billions of dollars of toxic debt on its balance sheet, the hope is that it may be able to avoid nationalisation. Bank of America and JP Morgan also said that they were profitable in the first two months of 2009. The result: the banking sector taking a positive turn.
Author of the Gloom, Boom & Doom report, Marc Faber was not all that positive. He was quoted as saying that a rally in U.S. market would be likely to continue till April-end and foresees a total collapse by year-end when “it becomes clear that the economy is in a total disaster.” Though he said that the S&P 500 is unlikely to hit lows below 666.
Sandip Sabharwal (ex JM Mutual Fund and SBI Mutual Fund) is pretty sure that we can expect a sharp correction soon. He posted his view on the Indian stock market in his blog. On an entry posted on March 3, 2009, he said that he expected the market to correct around 10%-15% from the current levels. He went one step further to say that this should happen by April 15, 2009. His view was that the bottom made at this point would be the final leg of the correction. Subsequently, the Indian stock market would recover sharply and by the end of this year it would move up by at least 50% from its bottom.
According to Faber, the whole global economy has little chance of recovering to the peak of economic activity witnessed in 2006-07. “We fell off a cliff in the last four months and we may bottom somewhere here, but don't expect the kind of prosperity to return that we had two years ago.”
That seems like a pretty safe prediction.
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