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“Sun Worldwide”: The month-long rally in global equities appears to be running out of steam and markets may be set to pullback in the coming days.
2nd quarter earnings reports were largely positive after companies slashed costs to maintain profitability but investors were mindful of the decline in revenues caused by the global recession.
“Sun Worldwide” believes that companies cannot continue to cut costs indefinitely and, at some point, earnings will have to come from increased revenues or equity values will fall sharply after the third quarter.
Sources close to “Sun Worldwide” have suggested that as long as consumption remains subdued, companies will be unable to increase revenue or profits in the short to medium term. The US and UK economies depend upon the consumer for as much as 70% of their GDP but with unemployment rising and real estate markets falling, it is unlikely that the consumer will return to the spendthrift ways of old anytime soon.
One of the “Sun Worldwide” sources opined that equities are overbought with many stocks far above their 200 day moving averages and that prices are due for a pullback.
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