Equity markets started the week in the same vain as they ended the last one, in a fairly negative mood, as investors continue to remain understandably cautious in these volatile conditions. Initially the equity market ignored some better than expected Chinese import data. Imports rose year on year by 7%, this was against a fall of 2% in August. One swallow does not make a summer, but after the recent raft of disappointing news it gave investors something to cheer about. As the day wore on equity markets enjoyed a short-term bounce from the oversold levels on Friday, but one would suspect this period of consolidation is not over yet.
The world finance leaders at the weekend continued their mantra of pledging to act boldly and ambitiously to give a lack luster economic recovery some greater momentum. As much as we all hope that is the case, it would be good to hear more clarity on what they feel those measures might be. On Monday the euro area finance ministers met to discuss fiscal and economic policy, they will have plenty to discuss.
Much has been made of the length of time (nearly 2 years) from the last correction of over 10% in the S&P 500. It could not be ruled out the current state of affairs being the catalyst for such a move.
This week starts the corporate reporting season in earnest, 10% of the S&P 500 companies report in the coming days. The season got of to a decent start with Alcoa last week, and expectations are for earnings to grow by 4.5% in Q3. One would assume some of those expectations have been brought down as analysts factor in the stronger US dollar, but this expectation may still prove to be a little optimistic. At present the S&P 500 trades on a forward multiple of 14.9x against an historic average over the past 10 years of 14.1x. That figure maybe distorted a little by history as the multiple probably fell sharply in 2008, but its fair to say equities remain close to historic fair value. Later on Tuesday Citigroup, Intel, Wells Fargo and Johnson and Johnson are some of the leading names that may give a greater insight as to how the season will progress.