The September/October pullback in the U.S. market was only minor. But it wiped out all of the year’s gains.
However, it found support, the market’s favorable annual seasonality kicked in, and the U.S. market gained back all the losses and went on to new highs.
However, European markets responded less enthusiastically to the arrival of favorable market seasonality. (Yes, the academic studies show the same annual seasonality in almost all global markets).
The worsening reports regarding the economy of the 18-nation euro-zone, and the economies of the individual countries within the pact were a drag. Warnings from the ECB that the euro-zone was close to dropping back into a recession, that even Germany, Europe’s largest economy, was in economic trouble, dominated the news.
However, over the last couple of weeks European markets seemed to anticipate change was coming, and began to rally strongly again.
And over the last week have come indications of the improvements Europe’s markets seemed to be anticipating.
China, one of Europe’s largest trading partners, whose slowing economy has been affecting exports from the U.S. and Europe, cut its lending rates, and took other actions to get its economy re-stimulated. And in Europe, the president of the European Central Bank impressed markets with renewed indications of an aggressive U.S. style QE-type bond-buying program being in the works to re-stimulate the euro-zone economies .
And this morning has come reports that Germany’s unemployment rate unexpectedly dropped to 6.6% in November. Spain reported its 3rd quarter GDP grew 0.5% and is now up 1.6% for the year so far. And in Italy, business confidence was up in November for the second straight month.
Not that all was rosy. The lack of inflation and threat of deflation continued in the reports. Consumer prices contracted in Spain in November for a fifth straight month, were negative 0.1% in Belgium, and the rate of inflation in Germany fell to just 0.5%.
But, European markets have been playing catch up to the U.S. market.
In the interest of full disclosure we and our subscribers have a 20% position in the iShares Europe etf, symbol IEV.
To read my weekend newspaper column click here: Global Economies Will Dictate Rate Hike Timing
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Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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