Global Economy May Be Much Worse Than You Think
On Thursday, chatter on the floor had everything to do with just how bad the global economy may be. What many retail investors may see as a positive development the pros say could actually be quite negative.
They’re talking about China, which stunned the Street by cutting its benchmark lending rate.
At first glance, the move would seem bullish. It would suggest that Beijing is becoming aggressive in its attempts to fight an economic slowdown.
But pros see it a little differently. They say the rate cut begs the question, “are things worse than we know,” explains trader Tim Seymour. “It makes me wonder what’s ‘really’ behind the move?”
In other words, is China’s economy – considered an engine of global growth – slowling so significantly that Beijing feels compelled not only to act – but to act quickly and aggressively.
China could have done something smaller like cutting reserve ratios – but they didn’t. They dropped rates. And Seymour says Beijing doesn’t cut all that much. “The last time China cut rates was during the crisis,” he reminds.
Trader Guy Adami agrees. He too asked himself, “How bad must things be? I’m not nearly as optimistic as I’d like to be.”
He thinks the market action confirms that’s many pros are interpreting developments in the same way.
“China cutting rates should have sent the S&P to 1350 and it should have held. That didn’t happen,” he says.
“The action leads me to believe that at best we test 1290. If it fails there, I think we trade down to 1205.”
Looking at the fundamentals, Karen Finerman says what the market needs is clarity. But she adds as a value investor, she’s still buying stocks. “If a stock trades down to a level where I want to own a stock – I’ll buy.”
Posted by CNBC's Lee Brodie
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CNBC.com with wires.