US Economy heading into the festive season and 2010

• US consumer sentiment unexpectedly fell in November while the trade deficit widened by more than forecast in September, which appears to be in line with the Federal Reserve’s view of a fragile economic recovery.
• Chicago Fed President Charles Evans said US monetary policy will remain “highly accommodative” for quite some time, and possibly beyond 2010, because of a weak inflation outlook and high unemployment. For the stock market this was positive news as it points to interest rate remaining very low.
• GDP Numbers for the September quarter were up 2.8%, yet the market was looking for more like 3.5%
• US Dollar is being sold off for preference towards gold.  This will make imports more expensive.  Will it lead to a flight towards US home grown products being purchased or will it simply add inflationary costs to raw materials being sourced offshore?

So December is historically a positive share market month, but as per our Australian Story, if the consumer doesn’t come out of hiding for Thanksgiving and Christmas, then expect the recovery of the worlds biggest economy to limp out of their current economic downturn and expect it to have some downward pressure on share markets.   If they spend up big and hopefully not on their credit cards, like in the past, then hopefully global stabilisation will continue on its upward course.

However the recent developments in UK / Europe with regards to Dubai debt repayment concerns to European Banks, will certainly ‘spook’ the markets and could spark a quick sentiment shift amongst investors and have them heading for the exit door from the equity markets leading to that ‘W’ shaped recovery we highlighted last month.

One thing is for sure, you should be paying close attention to the markets during a time that we would normally be sitting back and enjoying the festivities.  That’s unless you’ve weighted your investments towards well located Melbourne or Sydney residential property investments, which should weather any immediate volatility with lower risks to downside in capital values.

Knowledge is empowering……….