Earlier this week the polls in the US gave us some fascinating insights into voter preference in the race for the White House. It seems that in a fight between Hillary Clinton and John McCain, voters would vote for John McCain, but in a contest between John McCain and Barrack Obama, Barrack Obama would triumph. Therefore according to these polls the next President of the United States will be known as soon as the democratic candidate has been selected!
Whilst it is debatable just how much credence should be given to such polls failure by Hillary to make any significant gains in next month’s Ohio and Texas primary will make a McCain/Obama contest more likely.
It does seem likely that the race will be between Obama and McCain, assuming Hillary fails to make any significant gains in the forthcoming Texas and Ohio primaries.
However, whoever wins in November the likelihood is that the new president will still be dealing with the fallout from sub prime, the credit crunch and possibly a full blown recession. In previous elections the pattern has been for any bear market to emerge in the first year of a presidential term. In addition a new president has, typically, been obliged to introduce austerity measures in the first two years and then loosen the purse strings in the two years leading up to an election.
I doubt whether this time the pattern is going to be quite so clear cut. The frantic efforts of the Fed to stimulate growth with drastic interest rates to try and prevent a recession have yet to bear fruit. Indeed this week’s further deterioration in the Philly Fed data has been taken as evidence that a major slowdown is underway. In addition the index of leading US indicators fell by 0.1 pct month-on-month in January. The drop was the fourth in a row and was driven by losses in the equity market and continued signs of weakness in housing sector.
While not alarming at first glance, the six-month change in the index showed a steep drop and is also firmly pointing to a slowdown/recession. According to experts this particular indicator has successfully predicted every recession since 1960 and only throwing up one false-positive back in 1967.
As traders and investors it is never possible to predict just how long a slowdown or recession is likely to last, and whilst it would be foolish to try and predict tops and bottoms, nevertheless we can still look for suitable indicators which might help us to determine if there is a change of market sentiment. One such is the Coppock indicator which will tell us when just such a change has occurred, ie risk aversion has lessened and buying has once again returned.
More next time!