The New Buzz - Market Risk!
Dubai reveals the level of risk in the financial markets. In fact I read one headline this could be the end of the risk trade? There is risk in every trade from my view, but the excess liquidity in the system has created more willingness to take greater risk and this news from Dubai could drain the risk liquidity from the system short term. Only time will tell what happens from here, but it does reinforce the risk of the financial markets for all.
Large cap stocks are attracting money. The fear factor is creeping into the markets and thus some rotation to “safer” stocks is in play. Small cap stocks have been shunned and thus they are lagging . This is something I discussed in the Chart of the Day last week. I would continue to watch this sector as an indicator for growth as we head towards 2010.
The advance-decline line on the NYSE is showing signs of divergence to price. While not a sell signal unto itself this is a warning sign along with the small cap charts. I continue to see warnings signs. The more there are, eventually investors become believers and withdraw capital from the markets. In other words fear rises and money exits.
The market is poised to rebound from the surprise move on Friday. The knee jerk reaction was aided by the holiday, but there is still reason for concern. Most will be watching the black Friday sales reports. The preliminary numbers were positive and could be a catalyst to the upside if they are better than expected. All said, the level of risk relative to the financial markets is rising.
I read an interesting report on retail real estate relative to vacancy rates. Expectations are not high relative to the future and absorbing the excess space. Currently the vacancy rate is near 20% and even if retail rises to historic levels for average sales there would still be 12% or higher vacancy rates. Too much supply and too little demand, i.e. overbuilt. This could lead to shuttering of retail outlets to conserve cash flow. The impact to REITs is worth watching as rental rates fall on lease renewals and closing stores create excess space. Throw in the shifting of sales to online retailers and you could see more pressure.
It is back to work for the markets and investors. I don’t expect much from the last month of the trading year. Volatility is likely to increase as money rotates to ’safer’ sectors. Take a look at healthcare, telecom and utility sectors for evidence. We have money at work in each of these sectors and the outlook short term remains positive.
There should be opportunities pushing into the new year for the previous leaders. I continue to watch technology, financials and materials. Bottom line, it is going to be an interesting transition for investors towards 2010.
Have a great day investing.
