Market Watch: The October test
The money has come in, stock prices have zoomed, now it is the turn of events to justify all this optimism. Starting next week, exam season begins for the market. The first paper is global economics. Equities have priced in a very benign global scenario and the US economic numbers should not rattle this confidence. In the wave of post-Fed cut euphoria, potentially troubling news too has been read with green eyeshades. If however, more bad news pours in, equity investors may find it difficult to delude themselves. It is a paper with some tough questions.
The second paper is accounting. Earnings start pouring in next week and the market is now priced for nothing but good news. Even techs have had a pre-result upmove so the margin for error is truly quite low. This is the paper that everyone expects you to max, so there is a pressure factor here. Paper number three: political science. Tough paper. A test that is quite easy to flunk. The seeming calm of the last few weeks is surely one before the storm. Things could be coming to a head once again in October or November on the outside. Be prepared. The last paper for the month is in economic policy. In this, there are two segments: local and global. Locally, liquidity inflows are huge so it is tough to decide whether one should tick or cross the box next to a potential cash reserve ratio hike. Particularly, as the setter of this paper is a maverick at heart. The global bit is more predictable as it is supposedly "data dependent" and the data in the US is generally poor. There is a supplementary paper on math but that is part of every exam season. Here, valuations will be scrutinised, as they have moved up quite sharply in the last few weeks. It is always an important paper, yet not quite one that, at least in the short term, determines the overall result sheet.
Expectations of flying colours have been built up for the October exam season. Given these, sub par performance in even one of the papers could affect the end result materially. Hopefully, things will be all right and the boy will indeed seem as bright as people are making him out to be. After all, there is more than a lollypop at stake, once the report card is out.
(The writer is Executive Editor, CNBC-TV 18)