Shengtai Group – The Absence Of The Relief Rally
Shengtai Group: Investors wondering why the relief rally they were expecting in the wake of the signing of America’s debt ceiling deal need only look beneath the headlines. That is the view of analysts at “Shengtai Group” who believe that the deal was, to all intents and purposes, a package of austerity measures.
“Investors have gotten too used to America being able to borrow at ridiculously cheap interest rates and, although this debt ceiling deal lets them borrow up to another $2.1trn, it also means that they must cut spending by $2.4trn over the next decade. This is not ideal in an economy that only managed annualized growth of 0.4% in the first quarter of 2011,” said the equities director at “Shengtai Group”.
Although many commentators appear to be in favor of the spending cuts, there are many who believe that the spending cuts will help to push America back into recession.
“There’s no relief rally because investors can no longer ignore the cold, hard truth which is that less spending means less economic growth which means less impetus for corporate earnings growth,” concluded the equities director.
“Shengtai Group” did concede, however, that investors focused on key markets like precious metals mining and oil exploration and production stocks would not be disappointed in the medium term as more quantitative easing would inevitably boost the prices of the commodities they produce.
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