A Closer Look At Market Conditions

Capital markets are still attempting to forge ahead with their bear market rallies; but the weight of the situation is starting to get the better of sentiment. For equities, investors are beginning to realize that traditional market valuations (like the P/E ratio) are gauges that are relative. And, considering the economy is suffering its worst slump since the Great Depression, it pays to be extra cautious. As for commodities, a rebound in price must be sustained through a genuine shift in the balance of supply and demand. Thus, while funds may seek safety in the form of physical assets, the impact on price will not be as lasting as a true recovery in growth and demand.

General risk appetite is perhaps the most influential market dynamic in an environment where expansion and investment are left in limbo. It has been said before that we are suffering from a crisis of confidence. However, that is not necessarily true. While sentiment in the market is dour – and no doubt contributing to the difficulty in freeing up the credit markets and spurring a genuine rebound in investment – it is also rooted in objective fundamentals. Yields on assets are near recent historical lows, credit is frozen despite the Fed’s efforts to provide liquidity and the economy is in its worst state in decades. Even a bullish outlook for returns can’t make up for that kind of risk.