Worldwide stock markets have today received a welcome, although unexpected boost with news that the US Federal Reserve have reduced US base rates by 0.5% to 5.75%.  In a move which was designed to both inject liquidity into the money markets, and give the economy a much need boost, stock markets have rebounded sharply from recent lows.  But is the worst over?

While a move such as that experienced today is not so unusual, in the past it has often precluded more bad news which the Fed were aware of, but which was maybe not yet in the public domain.  Even though the markets have good reason for this show of short term relief, the situation is far from over and there will still be further fallout.

True, there will be more readily available liquidity in the markets which may see many firms over their bad times, but some companies have already suffered beyond reasonable repair.  Many of Wall Street’s larger companies have become embroiled in the situation, and the fact that many are looking to be bailed out by larger banks around the world is a marked change from their front running attitude of the past.

The stock market is a volatile and unpredictable beast at the best of times, and it has a habit of biting back just when you think you have tamed the beast.  Today’s substantial buying pressure has been greatly received, but those who think the situation is now over may soon be disappointed.  The central banks around the world cannot support such man-made situations forever, and there will be some form of accountability at some stage - “pay back time”. 

Once the current euphoria calms, many will still wake up to the fact that the US property market is still in big trouble, personal debt has never been higher, and much of the recent stock market rise was pinned on the back of takover and merger rumours.  It is highly unlikely that we will see an immediate move back to wild takeover speculation, something which may bring many more share price valuations back into line with reality.

It is essential that investor tread cautiously in what is still a difficult period for world markets.

Commonly referred to as the “suckers rally”, worldwide stock markets have returned to their recent down trend after a recent rally which tempted some back into the market.  After a few days of rest bite, we are now seeing the first cautious statements from some of worlds largest companies, with many forecasting that the situation will get worse before its gets better.

We have seen statements from retailers, manufacturers and investment companies, all of whom have taken a similar line in their reading of the situations.  The next step will be some official reductions in the expected growth of both local and worldwide economies, which could well lead to further profit downgrades and even sell recommendations.  When you also consider that a vast number of recent takeovers rumours will soon disappear, as funding becomes more and more expensive, the premium in many share prices will soon evaporate.

Attempts by central banks around the world to shore up the money markets, by injecting much need liquidity, have had a short term impact but they cannot continue bailing out the markets for much longer.  Sooner or later the market will find its natural level, a level which will be a reflection of the concerns of the moment.

All in all the next few months are going to be vital for both local and the world economy, although the probable slow down in economies may well reduce the likelihood of further base rate rises both in the UK and across the Atlantic.  However, for many investors, both directly and indirectly exposed to the stock market, this will be little compensation with stock prices likely to be under pressure for some time to come.

While the US sub prime lending crisis continues to unfold, the effects are now being seen on the European markets with above average demands for cash from those banks who have seen their balance sheets effected over the last few weeks.  Even the European Central Bank (ECB) are playing their part, injecting some $130 million into the system.  So what really is happening?

The concerns about sub prime lending in the US, and the deterioration in worldwide stock markets, have been the main catalyst for the recent money market problems.  While on the surface the problems appears to be confined to the US for the moment, today’s financial markets are very different from years gone by.  Complicated financial instruments are now common place, with many mortgages, loans and other financial investments chopped, split and repackaged for sale to other financial institutions.  As a consequence, many of the worlds largest banks will have substantial exposure to the US market, and many will be suffering at the moment.

The strength of the ECB support has spooked many in the market, as the reaction has been even above and beyond the support for 9/11.  Do the ECB know something which is not public knowledge or are they just trying to calm markets? Until the know sub prime lending situations unravels there will be those sceptical about the level of support, and the fact that the ECB have commented that more funding will be available, as and when required.

In the meantime the short term lull in the fall of worldwide stock markets is over, with both the US and European markets taking a hit over the last few days.  The worst situation for any stock market is one of uncertainty, and until the picture becomes clearer we can expect many more days of wild fluctuations.

As we see the fallout from problems in the US sub-prime credit industry continue, it is now starting to have a major impact upon other stock market around the world.  All of the major markets such as the UK and Japan are moving in tandem with the current volatile attitude of US investors.  So where next for world wide markets?

Over the last couple of years we have seen worldwide stock markets buoyed by takeovers, mergers and a high level of corporate activity.  This search for the next “takeover” has pushed many sectors and individual share prices to unsustainable levels, levels which do not represent the true value of a company.

The recent bout of investor profit taking, and general lack of confidence in the market has seen the so called “takeover” premium evaporate form many share prices, with many observers believing that fair value for many sectors is still some way off.  On top of this we have an ongoing crisis in the US sub-prime lending market, a market which has historically “called” the turning point of many economic cycles.

In the words of the old stock market saying, “the US sneezes and the UK catches a cold”, a phrase which now has great relevance to the rest of the world.  The US is such a power house in world trade that any fall out in their own economy is sure to effect worldwide markets.  Investors should expect a continuation in the current down trend, as well as much volatility along the way.  While there appears little chance of a crash, it is well worth keeping a close eye on the markets!

After months of speculation within professional circles, the US stock market has finally woken up to the crippling mortgage situation in the sub-prime sector.  Despite very down beat comments from a host of market professionals and the chairman of the Federal Bank, the stock market had (until this week) been enjoying a very lucrative run.  So what happened?

The catalyst for the recent sharp pull back in stock prices seems to have been prompted by more high profile mortgage default numbers, the withdrawal of some major players from the sub-prime mortgage sector and the news that some 1 million US home owners are struggling to cover their mortgage payments.  The US housing market (and the economy, after the knock on effect) is under serious pressure, and while the authorities will act to soften the blow, the situation will not be resolved over night.

As many investors and market observers fear that the economy may stall, we have seen the evaporation of takeover speculation in the market, with money expected to get tighter and a reduction in estimated investment returns.  These are markets which are not favourable to some of the high debt takeovers which have been mentioned of late.

It will be interesting to see how the markets react this week, and whether investors will be able to convince themselves that this is not a major issue.  However, it is an issue which will not go away, now that it has begun there will be serious consequences at some point.

As the US Dow Jones index continues to power ahead to all time highs, there are signs that the stock market performance of late may be masking what is happening behind the scenes.  The US Federal Reserve have been holding a conference with Congress over the last few days, with many experts asked to give their opinions on the state of the economy, the future, etc.  Its seems that all may not be well!

It was Federal Reserve chairman Ben Bernanke who actually brought up the ongoing situation with sub-prime lenders (sub-prime lenders deal with customers who have tarnished credit ratings) and the increasing dangers for the sector. Bernanke claims that far from the worst being over, when a number of high profile companies recently collapsed, there is still a lot more to come.  In fact he reckons that the sector could well soon lose out to the tune of $50 billion to $100 billion, as more and more struggle to pay their mortgages.

It is not just the repayment situation, it is also the fact that many homes may well come onto the market to enable the sub-prime lenders to recoup as much money as possible - thereby having a potentially massive knock on effect to the buoyant housing market.  A lot of Americans have recently ploughed their savings into the stock market and property, two areas which may suffer serious problems. So what can the authorities do?

Unfortunately, much of the damage has already been done with sub standard business written at the height of the market.  In order to return the sector to some kind of stability it appears inevitable, and essential, that there is some kind of shake out.  Quite how much of a shake out remains to be seen, but it will surely test the ever optimistic attitude of the US investor - and the Fed.