Equities markets have been particularly volatile during the third quarter of 2015. Let’s think about the
different scenarios that could help investors regain confidence.
It will not have escaped anyone that the economic environment has deteriorated in the third quarter of
2015. Despite the temporary resolution of the “Greek case”, China has given many signs of slowdown in
industrial activity, leading to doubts about future growth of the world economy. These doubts have
been transmitted to the US Fed, which did not dare to climb its key rates on September 17 as it was
Several major European Equities indices are back to a level close to that which was theirs early in the
year, and the S&P500 is slightly in negative territory.
In this context, two views are opposed. For some, the Equities markets are entering a downward cycle.
For others, this pessimism is excessive as central banks still have a few levers available to reassure
investors if it becomes necessary.
An American QE4?
There is still an existing possibility that the FED doesn’t hike its rate in 2015, and even establish a new
program of monetary easing (QE4) after the previous three already conducted since 2008 in the United
States. The introduction of each of these plans has led to a major bullish cycle for Equities markets.
The option is still considered very unlikely though, while a majority of FOMC members at the last
meeting were still anticipating an increase this year.
Other solutions could be planned however with much better odds.
A bounce in Commodities?
A global rebound in Commodities would give a breath of fresh air to many emerging countries whose
economies are closely linked to this sector. Equities markets would definitely benefit from a rebound in
this business area. A rebound in energy prices would impact positively inflation and also allow the Fed to
provide more visibility on the pace of rate hikes.
Additional measures from the ECB
One last surprise could come from the last decisions of the European Central Bank. Mario Draghi has
made a habit of surprising the markets since his arrival, thus, the ECB might surprise by announcing new
easing measures or increase and/or extend significantly the current ones.
It is apparently too early to bet on this kind of reinforcement of the latest measures and a period of
observation of the evolving of the economic conditions is required. But Equities markets could receive
some good news at the end of the fourth quarter and this is something we definitely have to monitor in
the next ECB statements.
On a personal point of view, I remain bullish on Equities markets, as I don’t see a systemic risk at the
moment that could trigger a deeper correction from the current levels. The earnings season is starting
soon and it will probably a clearer view on the shape of the economy. Last but not least, investors have
been talking (with fear) about that US rate hike since quite two years now, so this might not come as a
big surprise whether it happens next month or within three months. A rate hike should also been seen
as a good sign that the economy is on its way to recovery, not as a huge catastrophe.
Finally, a real crash will also most likely to happen when nobody expects it. Now, so many people are
expecting a bear market that I anticipate a short squeeze before any real bear Equities markets
materialize. If the S&P500 can hold the 1800-1850 support and reverse until at least 2010, it will trigger
many stops from short traders who might even reverse their positions.