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Real-Time Analysis and Insight – U.S. Equity Markets in 2011


The United States equity markets seem to be doing well lately. Unemployment is still high, residential property markets are still a concern and domestic debt issue are still a big concern. The overall short – term, domestic equity market picture may likely be promising for the rest of 2011. Why might this situation / outcome  be likely ? Judge for yourself after you read this blog post. There are many factors involved, but I will highlight and briefly discuss only a small handfull of the major issues. Again, anything is possible.

First of all, from a global investment asset allocation standpoint, monies are trending towards moving from international and emerging markets to U.S. equity markets. Historically, from a U.S. presidential cycle perspective, the third year ( which is 2011 in this cycle ); especially the first six months, in a 4 year presidential term, the U.S. equity markets outperforms other years on a consistent basis; and by a considerable degree. Why might this be so ? I would argue that during this 6 month period some of the reason has to do with the fact during this period of time the sitting U.S. president is up for re-election the next year and is focused on improving the economy.

For additional detailed analysis and insight on the effects on the economic effects of the domestic political cycle, please read an earlier blog post of mine, dated  July 1st, 2010 …  NEW IDEAS IN FINANCIAL MODELING FOR EQUITY MARKET VOLATILITY GLOBAL EQUITY MARKET VOLATILITY IN RESPONSE TO EFFECTS OF BOTH CYCLES AND ELEMENTS OF VARIOUS DOMESTIC CONGRESSIONAL AND ECONOMIC EVENTS AND ISSUES. Again, anything is possible; but this is a good historical sign. During the 2nd half of 2011 and all of 2012, Obama as well as the Republican and Democratic parties may likely be more focused on the politics of re-election.

Now let’s look at some macro – level indicators and trends. The U.S.A. is focusing its economy more on exports. The U.S. as a whole, in every sense of the word …. individuals, municipalities, states as well as the federal government, have been over – leveraged and in debt for quite a few years now. Large U.S. multi-national companies that get a good deal of their revenue and profits from overseas have been doing very well financially, as a collective group. Concerns regarding inflation in many countries, especially China definitely weigh on the short term future of the U.S economy and equity markets. Political unrest and change in the Middle East is a large concern, however there can be different ways to view and  frame the consequences of this political change. Change and uncertainty is often stressful, but is this political change and unrest a good or bad trend for equity markets, especially domestic equity markets?  It may depend on your individual perspective. Is your glass half empty or half full ?  There are also concerns regarding the future viability of the Euro as a currency and the future of the European Union as well. These macro – level trends / indicators will obviously have an effect on the U.S. economy and equity markets.   

The second half of the 2011 for U.S. equity markets may arguably be somewhat more difficult to figure out. There may be more reasons for concern. The U.S. residential real estate market and public debt problems might possibly become more of a political ( aside from the economic effects ) issue in the second half of 2011. Unemployment as well as underemployment will likely remain  relatively high. These 3 issues and their likely respective policy changes may take some time ( many weeks to many months or more ) to gel, solidify and for new domestic policies to be implemented and take an effect on the U.S. economy. I have recently not been following and studying the domestic debt issues as much as I would like, in order to be comfortable commenting very much on any specifics. But again let us remember that historically speaking the domestic equity markets are generally a 6 month leading indicator of the U.S. economy.

The housing market is another story. The domestic residential real estate market is likely, as a whole,  to bottom out, according to many respected economists and analysts, some time during late second to  third quarter of this year. Again this is all from a domestic equity market perspective. There does not seem to be much of a consensus yet on ideas and theories regarding how the housing market recovery will unfold. In addition, recently there have been domestic policy suggestions floated that the U.S. may be better served in the future if the federal government plays a lesser role in the residential housing markets. I’m guessing that this may have much to do with possible future structural changes and policies of government institutions such as Fannie Mae, Freddie Mac and perhaps others.

Again, anything is possible. We will see what happens.

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About Neven's Blog

My blog focuses on FINANCIAL MARKET ANALYSIS & INSIGHT from a macro as well as a micro - level point of view. The information is straight forward, honest, simplifies complex matters, questions some oversimplified matters, all while being as easy as possible for readers to understand. I primarily focus on capital and currency markets by combining insights, analysis & ideas from the fields of finance, economics and geopolitics.

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