Friday , 19 July 2024

The S&P 500 is Highly Vulnerable – Here's Why


Beyond the Debt Ceiling: 10 Reasons to Worry About Market Vulnerability

The headwinds mentioned below and the massive rally in the stock market over the last few years leave equity markets highly vulnerable. At the very least I think we will test the lower end of the S&P trading range (1250) in the very near future.  [Let me explain.] Words: 659

So says Bret Jensen  in edited excerpts from his original article* which Lorimer Wilson, editor of (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Jensen goes on to say:

There are myriad reasons to worry about the economy and the markets and here are 10:

1. Job growth remains anemic

Two sectors that usually add jobs during rebounds, government and construction, are under severe stress. Local and state governments have cut jobs 21 of the last 24 months and construction will not recover until the housing market does [read this article (1) regarding the prospects for housing].

2. Stimulus is winding down across the board and could soon be replaced by austerity measures

What is left of the Federal Stimulus Act runs out at the end of the year as does the payroll tax holiday. These measures are likely to be replaced by rising taxes and cuts to government spending. Although needed to begin to tackle the deficit, these actions will not be good for economic growth in the short term [read this article (2) on what to expect].

3. All the uncertainty created in Washington… is negatively affecting job growth

Companies large and small are reluctant to hire. Recent announcements of large scale layoffs at Merck and Cisco, among others, aren’t helping prospects for job growth and consumer confidence.

4. Economic growth is anemic and is worse than previously believed

The preliminary GDP growth report showed the U.S. economy grew only 1.3% in the second quarter. Worse, 1st quarter GDP was revised down to .4% from 1.9%. Talk of a double dip recession is growing and economists are cutting estimates for third and fourth quarter GDP growth [read this article (3) to understand just how important the GDP number is].

5. The housing market continues to suffer

The home ownership rate is at 65.9%, which is the lowest level since 1998 [this article (4) suggests why that is the case].

6. The economic slowdown in the United States is starting to affect other countries’ economic prospects

Canada just posted a surprise contraction of .3% for May, its worse performance since 2009. This does not bode well for worldwide growth.

7. The smart money is heading for the hills

Corporate insiders are selling at the fastest pace in decades according to Mark Hulbert.

8. Disappointing earnings and/or guidance from a variety of tech stocks

This undermines the growth prospects for what had been one of the strongest sectors of the market – technology.

9. Weaker than expected Chicago PMI and in the Michigan Consumer Confidence survey

Adds to the mounting evidence that economy’s headwinds are increasing.

10. The dollar continues to fall

The USD hit record lows against the yen and Swiss franc this week. Not exactly a vote of confidence in the U.S. by the world.

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Be careful out there.


Titles and Links to Articles Referenced Above:

  1. Forecast for House Prices is Horrific! Here’s Why
  2. Get Ready: More Taxes/Less Tax Breaks are Coming!
  3. Check Out THE Number to Watch for Market Direction
  4. What Caused the Financial Crisis? 3% Down Mortgages or Wall Street Greed? 

Editor’s Note:

  • The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
  • Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above