Economic data dominates the agenda right now but earnings season around the corner

Economic data from China, the U.S. and Europe as well as any hint of progress on the Spanish debt situation will be the focus for investors in the next couple of weeks. Then it’s over to the US third quarter earnings season starting with aluminium producer, Alcoa, on October 9th.

With central bank stimulus underpinning equity markets, private investors seem to be piling into equity markets with reports that flows into equity funds were at their highest for four years. But pressure on corporate earnings is mounting, with the ability to drive top line sales being hampered by economic and currency conditions, and profitability growth increasingly harder to come by as cost cutting measures begin to run out of stream. Last week’s earnings from parcel company, FedEx, showed the head winds that global corporations are facing as a result of a weak Europe and weakening China.

Given that interest rate and quantitative easing intervention is more or less maxed out, macro economic improvement is badly needed to jolt the global economy back into accelerated growth. But where is this acceleration going to come from even if cheap central bank money is sloshing around the world? Over the last few years, the Asian markets and particularly China have stepped into the fray to absorb the slack when the US and Europe slumbered under the cloud of the financial crisis. Countries like Australia have hugely benefited from the resulting commodity boom. The next chapter is less clear with the BRIC (Brazil, Russia, India, China) coming off the boil as a result of inflationary pressures, reducing exports or reduced investor appetite for emerging markets.

It’s a wait and see for me. With the US  S&P 500 up 16% for the year to date, much of the stimulus story has been lapped up by the market. Share valuations, particularly in the technology sector, don’t look as enticing by far as they did at the end of 2011. Rather than buying in now in the big cap space, waiting for the right pull back opportunity seems advisable from my perspective.

The last few years have shown the tremendous market volatility as sentiment swings back and forth, buying opportunities show themselves more often than not when you least expect.  Stock market investing is a game of patience at times, and not over trading this market on the long side seems a reasonable strategy right now.

Contrarian investor UK