At Zacks, the editors get together now and again to discuss
the state of the markets and exchange ideas. This week, we
did this. I took down some notes on what concerned the
Yes, we are in a strong rally that is now close to five months
old. The last two event-driven rallies lasted six
months. This market could hit some negative pothole to
bring a correction on at any time. Such events we don't
wish for. But we urge, as good investors -- be on the
Collectively, we identified six possible means for this rally
to find its way into a leg down, or a correction, however you
want to term it.
Six Ways to a Leg Down:
(1) Possible Federal government shutdown on March 27
. Is this the time when budget dysfunction reaches market
fundamentals? The Republican-controlled House approved
legislation Wed., March 13 to prevent a government shutdown on
March 27 and blunt the impact of newly imposed spending cuts on
the Defense Department. The 267-151 vote sent the measure to the
Senate. Democrats hope to give additional Cabinet agencies
similar flexibility in implementing their share of the $85
billion in cuts.
(2) The European economy in real GDP terms is to shrink
-0.3% this year.
When does a new raft of bank loan problems emerge from the
lengthening period of stagnation in activity and mass
jobless-ness? The so-called "strong" German economy, in the lead
in Europe, is set for a pathetic +0.7% y/y real GDP growth rate.
Yes, the Spanish 10-year sovereign bond rate is pricing at 4.84%,
well below the 5% threshold. It last saw the 6% threshold
in Sept. 2012. That sounds great. Perhaps
authorities serve up even more stimulus. But Germany has a
Sept. election, and may not be willing to move forward now.
(3) Jobs numbers could slow to +100K a month, as in
Yes, we are doing a +200K a month pace now, but is that
going to slow? Budgets in companies for hiring may now
close out the high level of hiring activity early in the year and
cause job growth to settle back.
(4) Steep downward revisions to annual 2013 earnings
projections are coming
. What happens when estimates start to come down?
This is the bread and butter of the Zacks Rank. Many
long-time and astute observers of earnings inside Zacks on
revisions think the current projections for growth in the second
half of 2013 and 2014 are way too high.
(5) Investors take profits.
Does the spring rally get tired, as it nears a six-month
threshold, much like the last two event rallies? This is yet
another negative cycle for the market. More profit taking,
and the lower go the stock markets, and the lower go consumer
sentiment numbers. It feeds on itself.
(6) Upward Fed revisions, to a +3.0% growth rate or more
for the U.S. economy, pull forward the end of $85B a month in
We know the Fed is planning to begin to taper its
purchases of bonds in Q1-2014. If the economy is so strong
the unemployment rate of 6.5% is reached by the end of this year,
the timing will change. Members of the FOMC could vote to
begin tapering bond purchases much sooner. Then, once the
bond market stalls, the stock markets follow. The Fed can't
close out the stimulus without a negative feedback loop in
What are you on the lookout for? Which of these
possible events listed above concerns
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