While the US economy is showing the signs of peaking,
the majority of the market sentiment indicators have already reached their
previous peaks. What these indicators tell us is that V shape recovery have
finally completed its current cycle. But this time recovery took longer time than preceding recessions due to the severity
and magnitude of the financial crisis.
Main reason behind the recovery in the U.S. economy was
the return of the household demand into the markets thanks to increasing
employment. The major drive behind the employment boost was the boom in the
shale oil industry. Oil industry has created 1 million additional jobs during
last five years.
Now maturing recovery has two challenges that puts
currently extended financial markets in jeopardy. One is decreasing oil prices
which will effect employment picture adversely, the other is FED’s interest
rate guidance conflicting with rising financial instability in the Euro zone,
particularly following the Greek elections, combined with the global deflationary
trends.
In brief, I am not suggesting that a recession is
imminent, but I am reminding that the risk to investors has risen over the
short term. Level of the over confidence
among the market participants warrants this cautious approach.
