European Markets Rises While US Retreats

Published by City Sentinel on Wed, 09/01/2013 - 11:41 in

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fiscal cliff
fiscal cliff

Daily Market Commentary for January 9: The new year just started has been impressive for equities so far. The Italian market is up 4.2%, the Spanish market follows just behind rising 3.5% and FTSE is also in the list and topping the S&P, the Dow, and even the tech index Nasdaq, by climbing 2.5%. Investors are bullish but there are differences between Europe and the US.

An impressive rally is underway since the last year of 2012, as investors have been optimistic about the last minute fiscal cliff deal. European markets have benefitted the most so far in the year, rising more than US markets, but that is mainly because most European markets were closed on the last day of 2012 while US markets rose significantly. When we include this day in our numbers, the S&P 500 is up 3.9%, the Dow up 3.0% and the tech Nasdaq 100 also up by 4.3% and leading the table we present below.

market performance

Even though markets have been trending higher, the main US indices retreated a little yesterday. After a rise of around 4% in just a few days, it may be the case that even the bulls need some fresh air before leading the indices higher again, but I have to cast some doubts about this bullishness. Truth is the fiscal cliff is far from being solved and we soon we will hear “Washington, we have problems”. Democrats and Republicans will have to reach a deal for the debt ceiling and for the fiscal cliff between February and March. For now, it seems that everyone prefers to just pretend everything is great but as time runs out sentiment will certainly change, unless, and against all odds, Dems and Reps can craft a deal in anticipation to scheduled limits.

For now, I won’t oppose the rally but prefer to be long Europe and short the US as I feel the fiscal cliff may put more pressure in the US.