15
OCTOBER 2013
ACT
BUSINESS NEWS
AUTHOR:
CHRIS SLEIGHT
is one of
the world’s most internationally
renowned construction
business writers, with
specialist expertise in financial
markets and stock market
analysis. He is editor of KHL’s
market-leading
International
Construction
and is a regular
contributor to
ACT’
s
sister publication,
International Cranes
and Specialized
Transport
.
Chris Sleight
reports that the
stock markets
cooled over the
quiet summer as
bond yields rose
and concerns
heightened over
the end of the
Fed’s quantitative
easing program.
T
he summer period
is usually a fairly
quiet one for stock
markets. Volumes tend to
be low and prices are flat
or down-ish as a symptom
of lower activity over the
vacation period.
It is a pattern that has been
seen this year, although
perhaps for slightly different
reasons. The seasonal cycle of
the markets has been unusual
over the last 12 months.
Normally, there is a rally
that starts in the fall, ramps
up nicely for bonus time
around Christmas and New
Years, and then runs out of
steam by mid-February when
results come out. After the
readjustment there is another
flurry through to the end of
May before a second retreat
over the summer.
But 2013 has seen the
markets rally and then rally
some more. The Dow hit new
highs above 15,000 points in
May and again in July, and
it is only now showing any
respect at all for gravity.
The driver for this has
not been the usual cycle of
financial results and seasonal
factors that play into the
economy. It has been a
function of investors seeking
a safe haven at a time when
bond yields are low and gold
has been falling.
No net gains
However, these factors
weighing in favor of the
markets are now giving way
to improving bond yields
and concerns that the end
of the Fed’s Quantitative
Easing (QE) program, which
currently pumps $85 billion
a month into the economy, is
coming to an end.
Although the demise of
QE will be a gentle one – the
key word being bandied
around is “tapering” of the
money printing – there is
still concern that this will
have a negative impact
on the economy at a time
when unemployment is
still relatively high and
the recovery is only slowly
ACT Heavy Equipment Index (HEI)
DOW
NASDAQ
S&P 500
25%
20%
15%
10%
5%
0%
-5%
-10%
% change
52 weeks to September 2013
gathering momentum.
Indeed, as
ACT
went to
press, an announcement on
the tapering of QE was due
from the Fed. The expectation
was that it would herald the
beginning of the end for this
unconventional policy.
Having said that, monetary
policy is likely to remain
easy for the medium term
at least. QE will probably be
phased out over anywhere
between 12 and 18 months
and unemployment will have
to come down a good deal
further before there is any
thought of raising interest
rates – 2015 or even 2016
would be likely.
So while markets are coming
off an artificial high, the
impact on the real economy
from these policies is likely to
be gentle and relatively slight
on a day-to-day basis. Indeed,
as the economy strengthens,
stocks like those that make up
the
ACT
Heavy Equipment
Index (HEI) are likely to rise
as revenues and profitability
improve.
■
ACT’
s Heavy Equipment Index
(HEI) tracks the performance
of eight of America’s most
significant, publicly-traded
construction equipment
manufacturers – Astec
Industries, Caterpillar, CNH,
Deere & Company, Joy Global,
Manitowoc and Terex.
Off the boil
