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.