Tags: stocks | market | central banks | QE

WSJ: Steady Dip-Buying Spreads Worldwide from US Markets

WSJ: Steady Dip-Buying Spreads Worldwide from US Markets
(Dreamstime)

By    |   Monday, 30 October 2017 12:12 PM

Buying stock-market dips has been a winning strategy for U.S. investors in the past two years with the relentless rise to new records. Global markets also are bouncing back quickly from shallow declines, showing that the strategy works well beyond the U.S., at least so far, The Wall Street Journal reported.

The S&P 500 has lasted 246 trading days without declining more than 3 percent from a record high, the longest streak ever for the index, according to LPL Financial. The index hasn’t had a decline of 10 percent or more from a recent peak since February 2016.

Meanwhile, Japan’s Nikkei gained 2.6 percent last week to the highest since 1996, and stock benchmarks in the U.K. and Germany also hit records this month.

“The investor base has been conditioned to buy the dip,” Mohamed El-Erian, chief economic adviser at Allianz SE, told the newspaper. “And the reason why they have been conditioned is because it has been an extremely profitable trade.”

Central banks have helped to make stock markets more durable by keeping interest rates low and with the direct buying of financial assets. While the Federal Reserve last year stopped buying Treasury and mortgage debt, as part of its “quantitative easing” programs, and has raised interest rates several times, other central banks have stepped in to flood global markets with liquidity.

A key test will be whether markets can keep rising without so much central bank support. The Fed is letting its debt holdings mature without replacing them, which will gradually reduce its balance sheet starting this month. The European Central Bank also plans to cut its monthly purchases of government and corporate debt.

In the stock market, investors have bought dips more quickly than they used to. The S&P 500 recouped most of its 5.3 percent two-day post-Brexit decline in only three trading days last year. It took just three days for the S&P 500 to recover from a 1.8 percent drop in May following reports that President Donald Trump asked then-FBI Director James Comey to drop an investigation into former National Security Adviser Michael Flynn.

Similar bounce-backs have been seen in some foreign markets.

The Brazilian real plunged against the dollar and Brazilian shares tumbled 8.8 percent on May 18 after the country’s Supreme Court approved an investigation of President Michel Temer amid bribery accusations. Three months later, the Bovespa Index was back at records, the WSJ reported.

The Turkish lira fell 2.3 percent against the U.S. dollar on Oct. 9, a day after the U.S. and Turkey stopped issuing nonimmigrant visas to each others’ citizens—and then bounced back two days later, erasing more than half of the declines.

Veteran market guru David Rosenberg advises savvy investors to look on the other side of the world for today’s best investment opportunity.

"The one part of the world which looks very good to me right now, a great turnaround story that's under-owned, is Japan. The Nikkei is breaking out," Gluskin Sheff's chief economist and strategist told CNBC.

"Japan is probably the most under-owned stock market on the planet from a global portfolio manager perspective," the economist added. "I think even a child could see that the 30-year secular downtrend has been broken over the course of the past couple of months," he said.

Rosenberg said Japan has one of the few markets that isn't trading expensively to its historical price earnings ratio — noting "almost everybody else in the world is."

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Buying stock-market dips has been a winning strategy for U.S. investors in the past two years with the relentless rise to new records. Global markets also are bouncing back quickly from shallow declines, showing that the strategy works well beyond the U.S., at least so far,...
stocks, market, central banks, QE
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2017-12-30
Monday, 30 October 2017 12:12 PM
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