Some investors are biding their time waiting for even an intermediate deal from TPTB in the EU. Other investors continue to head toward the exits as the ICI reports equity mutual fund redemptions exceeded $6.6 billion dollars once again. Late last week, Goldman Sachs saw future equity fund flows differently as noted below. Below you'll note estimates of ongoing withdrawal of funds from retail. On the other hand positive fund flows will continue via stock repurchase programs and hoped investment from overseas investors. The former is financial engineering, since companies with large cash reserves and little incentive to invest would rather buy back their own shares. This does little to stimulate economic growth and employment beyond decorating corporate balance sheets and making earnings look better spread over fewer shares.
It's also important to remember the growth of GDP in the eurozone has declined just as they're trying to resolve their debt crisis. It's a messy situation at best and the U.S. situation doesn't appear much better and is made worse by a cynical and unproductive election cycle.
It's the holiday season and most pundits in the financial media are talking up a Santa rally. This could happen no matter the news since portfolio managers (ourselves included) wish to improve on YTD performance.
Late in the day, and perhaps with nothing better to do, bulls got restless and launched some buy programs. Perhaps the
release of a more unified approach to problem solving by Merkel and Sarkozy
got the algo programs launched. It won't take much to get the animal spirits going in this environment. Gold rallied, the dollar was off slightly and bonds were stronger on the day. Oil and commodity prices were lower overall.
Stocks rallied sharply in the last half hour on the eurozone preliminary report, but in last few minutes saw rapid profit-taking as follow-through couldn't be maintained. Volume was somewhat heavier given the last half hour of program trading but breadth per the WSJ was mixed.
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