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Ear to the Ground

Europe’s Plight Chills Year-End Market Predictions

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Posted on Nov 25, 2011
Flickr / SimplySchmoopie (CC-BY-SA)

Things may look a bit different on Wall Street this year. This photo was taken in 2008.

Traditionally, the holiday season brings good tidings for the stock market, too. There’s even something called “the Santa rally,” we learned from this Wall Street Journal article. Neat! But this year, with trouble on the European front and the ongoing recession (yes, that reads “recession”) at home, there may be less to look forward to, or so market forecasters fear.  —KA

The Wall Street Journal:

In recent weeks, Europe’s debt problems have overshadowed some of the best U.S. economic reports. Corporate earnings that mostly beat forecasts have done little to lift stocks.

“My outlook for a year-end rally is not as favorable as it was a month ago,” said Peter Coleman, director of research for JMP Securities. “The sad thing is, the underlying fundamentals and the things that should be driving the market haven’t really changed. If anything, they’ve gotten incrementally better. But the big unknown is Europe.”

The Dow Jones Industrial Average fell 4.8% for the holiday-shortened week, posting its worst Thanksgiving week since markets began observing the holiday in 1942. Currently, the S&P 500 trades just under 1159, down from a recent closing high of 1285.09 in late October.

Strategists at 12 of Wall Street’s leading financial firms, on average, expect the S&P 500 to end 2011 at 1278, according to Birinyi Associates, or more than 10% above current levels.

At the beginning of 2011, these strategists were anticipating a year-end target of 1365.

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By Marian Griffith, November 26, 2011 at 5:22 am Link to this comment
(Unregistered commenter)

The whole euro crisis is manufactured and draws away attention from the equally bad economic troubles of the USA.

With all the talk of austerity and economic reform being forced on european countries there is one solution that either has not yet occured to the politicians or it has and it is carefully not talked about so as not to draw attention to the elephant in the room.

Almost all of the debts owed by european countries are to other european countries. In other words they are in an ideal position to default as a economic block. The european commision could simply say that it stops paying back their loans to countries outside the euro zone.
And in fact, they do not even have to go so far as actually do so. All they need to do is make clear in no uncertain terms that an attempt to speculate against one european country is against all countries and that driving one country into default will mean all european countries shall follow suit.
This spectre is pretty much the only thing that is keeping those speculators from betting against individual american states as well. It would be easy enough to hike up the interest rates demanded of the state and counties of, say, alabama by a factor 3. Except that the federal government would allow that state to lend at the same rate as the rest of the states regardless. Mind, with a 15 trillion and climbing debt the USA can afford to do so less than it thinks, unless it wants to risk massive inflation down the line, but it makes the USA a less attractive target than individual european countries.

And should the eurozone decide to close ranks against speculators that is where things will get really ugly for the banksters. After all they have 600000 trillion dollars with nowhere to go in that case.

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