Trader’s Market Setting Up for 2012: SPY, FXI, JPM, EZU
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The market swings of 2011 definitely made for a trader’s market. Although the equity markets are off to a solid start to 2012, there are a number of factors that will exert downward pressure in the months ahead. As market volatility kicks up, buy and hold investors are likely to look for cover while proactive traders can capitalize on the opportunities that will emerge.
Concern on the Horizon
Thanks in part to a big open on the first trading day of 2012, the SPDR S&P 500 ETF (NYSE: SPY) is already up 1.8% over its 2011 close. “My foresight suggests that 2012 will start well, but the road will become very rocky as the year progresses,” Tom Kee Jr., President and CEO of Stock Traders Daily wrote in a recent client newsletter.
Traders will want to keep a close eye not only on Q4 earnings as they are released, but also forecasts for 2012. “My earnings related observations further suggest that it was China, almost predominately, that has kept U.S. corporate earnings growing at such a solid clip in 2011,” Kee wrote. “If China starts to falter and Europe is in a recessionary environment U.S. corporate earnings are likely to start to experience reduced growth rates.”
Looking Abroad
Chinese stocks suffered a rocky ride in 2011. The iShares FTSE/Xinhua China 25 Index (NYSE: FXI) dropped 19.5% last year. Questions surrounding the oversight of accounting practices in the country and a general concern of an economic slowdown have weighed heavily on Chinese securities in recent months.
In 2010, JPMorgan Chase & Co. (NYSE: JPM) pulled in $5.8 billion in revenue from its Asia Pacific operations. This figure only represents a small portion of the bank’s total revenue, but it remains an area of great opportunity. The bank is slated to announce its Q4 results before the market open on Friday and analysts are predicting that JPMorgan will report total revenue that is 12.3% below its Q4 earnings from 2010.
The recessionary environment in Europe that Kee refers to cannot be ignored. The iShares MSCI EMU Index (NYSE: EZU), which tracks a basket of European stocks, has slid 20.0% since this time last year. Unless the region is able to reverse its fortunes quickly, U.S. multinational corporations could see their bottom lines impacted as well.
With so much uncertainty in the air and some tough barriers to growth in 2012, it appears to be setting up as another year where proactive traders will have the opportunity to win out over buy and hold investors.
Read some of our Proprietary Reports with a Free Trial:
- 2010 - The Year of the Increase - A precursor to market action in 2010
- Top of the Market to you - Round 2 - Proves the next major top.
- S&P historical Valuation Comparisons - Compares today's market to past environments.
- Expect M&A to increase as revenue growth becomes tight (August 2010)
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