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Equity markets are like a child that can't concentrate and is constantly distracted by the next shiny thing. The difference this year is that markets have been distracted by possible land mines -- not pretty little shiny things.
Since the equity market-highs in the spring, there have been a series of bumps that have put stock prices under pressure. The land mines include: the Japanese earthquake, a series of rate hikes in China and Congressional foot-dragging on raising the U.S. debt-ceiling.
When these issues weren't front page news, Europe has been a perfect place for traders to zero in on the ongoing drama of "we fixed it" announcements followed by "umm, not yet".
The markets gyrated higher, but mostly lower -- with three out of every four sessions since the first of August being triple digit moves for the Dow (half of the S&P/TSX Composite moves have been of a similar magnitude).
But little boys and stock markets have another thing in common. You can only punish a little boy so many times for the same infraction before he figures that you better increase the punishment, or he'll continue to do it.
For stock markets, they too can only react to the same news so many times before it is discounted in share prices and they either a) switch direction or b) dither around until the next event occurs (either positive or negative).
So what's on the horizon?
We have earnings season in U.S. where earnings are expected to be up 13 percent year-over-year. Since 86 companies within the S&P 500 have announced their earnings will come in below expectations and only 33 have provided a positive outlook, the reporting season will likely be a bit choppier than usual.
While Europe will remain a focus (October 23rd is the debt crisis summit), traders' attention will come back to the U.S. for the November 23rd deadline of the Super Committee of the U.S. Congress. They are charged with finding an additional $1.5 trillion US in deficit cuts or face the prospect of across the board cuts. This fiscal drag could put further pressure on expectations for growth in 2012.
On a more positive note, the worry of a hard landing in China might get a reprieve as eyes turn towards the country's annual Central Economic Work Conference where Chinese leaders focus on economic plans for the following year. Some argue that after a series of rate and reserve hikes in 2011, authorities won't want to do it again, especially in the face of the coming Year of the Water Dragon, one of the more significant of the Chinese signs.
So the circle will keep turning from Europe to the U.S. to China -- and probably back again. The trick for traders will be to gauge the impact of this merry-go-round on asset prices and whether the latest move is discounted or not. A tough order, but ultimately a profitable one if you get it right.