Today’s “up and down” market environment
We made it through the predicted Mayan apocalypse and the transition from the fourth “sun” to a fifth. But now scientists are warning that the sun is out to get us. According to NASA, the sun’s current cycle, known as Solar Cycle 24, is expected to reach its peak in early to mid 2013. Powerful solar flares have begun to have a significant effect on Earth. They can cause long lasting radiation storms in the atmosphere disrupting electrical infrastructure and temporarily rendering cell phones useless.
But can they cause stock market pullbacks? The most notable stock market pullbacks of the past two years coincided with spikes in solar activity. In particular, recent stock market pullbacks have coincided with solar flares: August 2011, November 2011, May 2012, and October 2012. However, it was not the consequent electromagnetic storms that disrupted the stock market. Instead, it was flare-ups of a different sort: the debt ceiling debacle (August 2011), the European financial crisis (October/ November 2012).
The potential flare ups we are monitoring this year are:
European Crisis: The Scandal in Spain plaguing Prime Minister Mariano Rajoy, the deadlocked election outcome in Italy that puts economic reforms at risk, and the unwillingness of Germany to approve more aid ahead of the fall elections in that country all raise risks. It was events in Europe that pulled stocks down 10 percent or more as measured by the S&P 500 in the spring of each of the past few years, we should be watching things closely for a repeat.