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from Global Investing:

Three snapshots for Tuesday

The euro zone just avoided recession in the first quarter of 2012 but the region's debt crisis sapped the life out of the French and Italian economies and widened a split with paymaster Germany.

Click here for an interactive map showing which European Union countries are in recession.

The technology sector has been leading the way in the S&P 500 in performance terms so far this year with energy stocks at the bottom of the list. Since the start of this quarter financials have seen the largest reverse in performance.

from Global Investing:

Oil prices — Geopolitics or growth?

It's the economy, stupid. Or isn't it?

Brent crude has risen 15 percent since the end of last year, focusing people's minds on the potential this has to choke off the recovery in world growth. But some reckon it is the recovery that's at least partly responsible for the surging oil prices --- economic data from United States and Germany has been strong of late. There are hopes that France and the United Kingdom may escape recession after all. And growth in the developing world has been robust.

Geopolitics of course is playing a role  as an increasing number of countries boycott Iranian oil and fret over a possible military strike by Israel on Iran's nuclear installations.  But Deutsche Bank analysts point out that world equity markets, an efficient real-time gauge of growth sentiment, have risen along with oil prices.

Their graphic (below) shows a remarkably close relationship between oil prices and the S&P 500. Click to enlarge

Deutsche says:

We find it hard to believe that a genuine concern about a real risk of war would have accompanied a 4.7 percent gain in the S&P 500 index during February to a post-Lehman high.

from Global Investing:

Hedge funds still lagging behind

How are hedgies performing this year?

The latest performance data from Nice-based business school EDHEC-Risk Institute shows various hedge funds strategies returned on average 1.46% in January, far behind the S&P 500 index which gained almost 4.5%.

Emerging markets strategy was the best performing, with gains of 4.55%. Interestingly, this is less than half of how the benchmark MSCI EM index performed (up more than 11 percent in the same period).

On the downside -- unsurprisingly -- short selling lost 6.85%.

EDHEC says equity-focused strategies showed strong performance overall, hitting a five-month high, thanks to their increased market exposure.

Meanwhile, Bank of America-Merrill Lynch's fund managers survey also showed hedge funds are raising their gearing levels. The ratio of their gross assets relative to capital rose to 1.49 this month from 1.22 in January.

from Global Investing:

Base, worst and best case scenarios from Coutts

UK private bank Coutts (established in 1622, the year of the Glencore Massacre and two years before the Bank of England was founded) has been very bearish.

It still attaches a high, 25 percent chance to a partial or complete euro zone breakup and has been recommending its investors to position very defensively.

The chart below shows their base-case assumptions of S&P 500 index at 1,300 (about 3% below the current level), along with best and worst case scenarios.

"Our base-case scenario – where the euro zone manages to hold together this year while experiencing a mild-to-normal recession – sees fair value for the S&P 500 at around 1300, with a possible trading range of 1170 to 1430," Coutts says.

"However, within our base-case scenario we expect periods when euro zone crisis fears flare up and a break-up gets partially priced in, although ultimately avoided."

During these uncertain times, like last September, VIX could go up to 47, which would imply a potential decline in U.S. equities of roughly 10% from current levels. This in turn would create an opportunity to add to U.S. equities at good value.

from Global Investing:

Timing the next bull market in stocks

Markets are down again today (MSCI world index down 0.7 pct so far this morning) and the market overall is nearing a bear market territory again (from a three-year high hit in May).

But asset managers are starting to look forward.  JPMorgan Asset Management reckons that if one assumes the current bear market for most equity indices started in 2000 and that the the trend of the previous experiences is to be repeated, then the current environment should be ending around 2014 (By the way, those who predict stock market cycles with sunspots activity reckon the year 2012 or 2013 is the bottom, but that's a different story.)

But 2014 does seem a long way off.

"While this may sound depressing from 2011, we hasten to add that we are not expecting the ongoing bear market to result in continued downside, but rather in persistence of broad range-trading prior to a sustained breakout to the upside," Neil Nuttal of JPM AM writes.

Nuttal says that since 2000 the  S&P 500 average level is close to 1,200 (compared with Thursday's close of 1,216.13) , meaning the market has not slid too far out of range.

"At present, the wall appears to be very much in evidence while providing very little opportunity for ascent, notably in Europe, but not exclusively so... The majority of investors are light of risk, meaning that the pain trade (the development that would cause the most pain to the most people) would be a sharp rally in risk assets," he adds.

from Jeremy Gaunt:

Getting there from here

Depending on how you look at it, August may not have been as bad a month for stocks as advertised. For the month as a whole, the MSCI all-country world stock index  lost more than 7.5 percent.  This was the worst performance since May last year, and the worst August since 1998.

But if you had bought in at the low on August 9, you would have gained  healthy 8.5 percent or so.

In a similar vein, much is made of the fact that the S&P 500 index  ended 2009 below the level it started 2000, in other words, took a loss in the decade.

That completely ignores, however, a more than doubling of the index between 2002 and 2007.

There is a danger sometimes in allowing the calendar to dictate your interpretation of financial market behaviour.

from Reuters Money:

Tea Party downgrade? Here’s what S&P actually said

Was it a Tea Party downgrade?

Beltway media has offered the usual pox-on-both-political houses analysis of Standard & Poor's downgrade of U.S. debt and this week's market meltdown. The two parties spent Monday blaming one other side for the debacle. According to this narrative, both sides must bear equal guilt.

But what does S&P actually say in its downgrade report?

Politics: The downgrade analysis is very political. S&P issued the downgrade even though we avoided default -- and even after the Treasury pointed out S&P's $2 trillion math error. S&P went ahead with the downgrade due to its concerns about political dysfunction in Washington, which has created "greater policy uncertainty."

Which political party does S&P fault? Let's go to the memo (emphasis added):

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.

And:

from Jeremy Gaunt:

Don’t invest in gold?

Bit of fun, this -- and might raise some issues about returning to the Gold Standard. The S&P 500 stock index priced in gold (thanks to Reuters graphics whiz Scott Barber):

from Global Investing:

The best stocks of 2010

For all the doom and gloom associated with the broader economy—historic unemployment in the United States, debt woes and mandated austerity in Europe—it's been a remarkably positive year for the stock market. As we enter the last week of 2010, the S&P 500 index is up nearly 13 percent for the year. That's far from a record (1954 witnessed a breakneck 45 percent rise), but at least the index this year climbed above the level hit before Lehman Brothers declared bankruptcy in September, 2008. The stock comeback story is not unique to America, either; this week, Korea's stocks hit their highest level in more than three years.

At one time, the gurgling stock market would have been a fairly reliable predictor for a healthy economy in the near future—and who knows, that may still be the case. More bearish observers point to artificial stimulants, like an unsustainable commodity bubble and the Fed's quantitative easing policy.

Regardless, a lot of equity holders will be popping Champagne (or prosecco) this week. Our chart below shows the top ten performers in the S&P 500 for the year—so what does it tell us? Well, the best-performing stock of the year is Cummins Inc., an Indiana-based company that makes power generators and diesel engines. Not surprisingly, its strong market performance this year is based on healthy sales abroad, particularly in emerging markets enjoying the rise in commodity prices. Another top performer has been AIG, the once-mighty insurer which lost nearly all of its value in 2009 but has made a strong comeback thanks to a massive taxpayer bailout. Two other financial firms that also flirted with the abyss made the top ten.

Looking at much of the rest of the list, you'd be forgiven for thinking we are living through a second dot-com boom. It includes Web-accelerator Akamai, veteran travel site priceline.com, enterprise software firm salesforce.com, and telecom service provider Qwest Communications. One Web star that didn't make the list is Netflix, which is up an astonishing 233 percent this year. If Netflix can sustain growth like that in 2011, it will likely make the chart next year, because this month it was added to the S&P 500.

from Reuters Money:

The best stocks of 2010

[CROSSPOST blog: 36 post: 4126] Original Post Text: For all the doom and gloom associated with the broader economy—historic unemployment in the United States, debt woes and mandated austerity in Europe—it's been a remarkably positive year for the stock market. As we enter the last week of 2010, the S&P 500 index is up nearly 13 percent for the year. That's far from a record (1954 witnessed a breakneck 45 percent rise), but at least the index this year climbed above the level hit before Lehman Brothers declared bankruptcy in September, 2008. The stock comeback story is not unique to America, either; this week, Korea's stocks hit their highest level in more than three years.

At one time, the gurgling stock market would have been a fairly reliable predictor for a healthy economy in the near future—and who knows, that may still be the case. More bearish observers point to artificial stimulants, like an unsustainable commodity bubble and the Fed's quantitative easing policy.

Regardless, a lot of equity holders will be popping Champagne (or prosecco) this week. Our chart below shows the top ten performers in the S&P 500 for the year—so what does it tell us? Well, the best-performing stock of the year is Cummins Inc., an Indiana-based company that makes power generators and diesel engines. Not surprisingly, its strong market performance this year is based on healthy sales abroad, particularly in emerging markets enjoying the rise in commodity prices. Another top performer has been AIG, the once-mighty insurer which lost nearly all of its value in 2009 but has made a strong comeback thanks to a massive taxpayer bailout. Two other financial firms that also flirted with the abyss made the top ten.

Looking at much of the rest of the list, you'd be forgiven for thinking we are living through a second dot-com boom. It includes Web-accelerator Akamai, veteran travel site priceline.com, enterprise software firm salesforce.com, and telecom service provider Qwest Communications. One Web star that didn't make the list is Netflix, which is up an astonishing 233 percent this year. If Netflix can sustain growth like that in 2011, it will likely make the chart next year, because this month it was added to the S&P 500.