Financial markets back from the abyss – but will it work?
This note looks at the wild swings in financial markets over the last week or so. The key points are as follows:
• The move to a comprehensive solution to the financial crisis by US authorities substantially removes the risk of a financial meltdown.
• The ride for investors will remain rough though as the US bank bailout solution does little to prevent further economic deterioration over the year ahead. This is evident in the fall back in share markets after the initial euphoric reaction to the US bank rescue package as doubts have resurfaced regarding the economic outlook.
• However, with shares already cheap and the risk of a meltdown/global depression likely to recede there is now a good chance that we have seen, or at least come very close to, the low for the bear market.