Further rioting and protest in Egypt portends more of what we got on Friday.
Both the euro and the Aussie are diving, and that’s negative on “risk” across the board.
Mike O’Rourke of BTIG has more on what the week may look like equity-wise:
Markets do not like surprises, but at this point, the initial surprise is over. It remains to be seen whether tensions recede, escalate or take a truly bad turn. From a technical perspective, nobody wants to buy on the first day down. As such, investors should let this move run its course for a few days. If selling pressure persists over the next few days, then by Tuesday or Wednesday we expect real buyers to materialise.
And on Friday’s GDP report…
On the domestic front, disappointing earnings were offset by a good GDP report. Although GDP missed expectations, Final Sales did register 7.1%, the best gain since 1984. Importantly, businesses sold from inventories and the change in inventories subtracted 3.7% from GDP. Such inventory adjustments are generally driven by recessions. Going back to 1948, in scenarios where inventories subtracted more than 2% from GDP and GDP was 2% or greater, the following 2 quarters posted average GDP prints of greater than 4%. Going back to 1980, the subsequent three quarters averaged gains of 4.45%, 4.75% and 4.65%. We cannot predict whether historic averages will repeat, and this number has two more revisions coming, but it does help place the recovery on more stable ground. It further reinforces the likelihood of buyers emerging as this corrective move runs its course.
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