Which Way Next For The Stock Market?

There is a growing fear amongst traders that the midsummer stock market falls are just the tip of the iceberg

. The overriding, and ongoing, concern is with regard to the fiscal health of the Eurozone. With the end of the Eurozone funding programme closing in, and Europe's banks scheduled to repay the Central Bank, the immediate outlook looks uncertain at best. Nervous investors are likely play the waiting game a little while longer.

As David Jones of IG Index recently commented, It has been an ugly start to the second half of 2010 for most major stock markets. After posting a drop of around 9% for the first half of the year, the FTSE 100 has pushed back to levels not seen since September 2009. The markets have had a plethora of weak economic news and that does not look like stopping.

The slowing in manufacturing growth in China has heightened concerns that the region, often seen as the driving force behind the global economic recovery, is beginning to stutter. This, coupled with a clear drop in US home sales data as US government support ended, has only served to heighten concerns about how flimsy the world recovery really is.

The move by the FTSE 100, and other markets such as the S+P 500, to near 10-month lows appears to have momentum behind it. Looking around there is just no news coming out to counter current concerns of slowing economic growth. On top of this there are other major issues such as the ongoing sovereign debt risks. The markets appear to require a stunningly positive surprise to pull them out of the present slide.

Unfortunately, it is difficult to see any key positive shock moves to the upside. With Greek debt downgraded to junk status, and Spanish debt also downgraded, it is easier to foresee one of the EU countries defaulting on their debt obligations. If that happens we could very well see a rather unpleasant chain reaction. The prognosis is not good.

Having said all this, Simon Denham of spread betting company FinancialSpreads.com offers a little more reassurance, Interestingly while the press and trading floors worry incessantly about a Double-Dip recession even the most bearish of economists seem not to agree.

Yes, we are probably not going to roar out of the traps, the recent data has shown that huge debts do have to be paid back in hard work and for little return. However this is a long way from an actual slowdown.

Perhaps investors will continue to play the waiting game.

by: Peter Jones

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