Four Issues Keeping a Lid on Stocks

Four topics continue to dominate the market action. In my opinion, the market is destined to remain range bound or under pressure until we get some clarity on the these 4 topics that are keeping a lid on stocks:

1) Earnings

The S&P just reported its first ever negative quarter in terms of "as reported" earnings. Companies have been cutting guidance or eliminating guidance at a pace never before seen. Earnings are the primary driver of stock prices and it will be impossible for any sustainable rally to mount before we get some clarity in earnings.

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2) Bank Nationalization/Reorganization

The consensus seems to be moving more and more towards the realization that reorganizing or nationalizing the banks is a necessary evil. I wrote the Fed over 5 months ago regarding this plan. It appears as though the idea is finally gaining some traction. It's highly improbable that the banks will trade higher as long as this uncertainty is hanging over the markets. Bank of America (BAC) and Citi (C) are certainly trading as if they're on the chopping block....

3) Eastern European Uncertainty

The recent developments in Eastern Europe are troubling to say the least. Europe's economy is slipping into a deep recession at an alarming pace. With high interest rates (comparatively), a bloated currency (FXE) and a mountain of outstanding emerging market debt Europe certainly appears to be the greatest risk to the global economy at this time.

4) Commercial Real Estate

Commercial real estate appears to be imploding before our eyes. The market was very ugly in October, but did not reach panic levels until CMBS began to blow out in the middle of November. We are beginning to see the same kind of action.

Until we get some clarity on these four issues it's hard to imagine that this market will break out of this range bound trading. And that's assuming it doesn't break down entirely beforehand.

Disclosure: No positions.

Comments

[CautiousInv...:]

In a sentence, I think the market is debating whether all of the policy responses taken by our government and others will stabilize the global financial system and contain deteriorating economic fundamentals. Thus far, there seem to be little faith in the policy initiatives.

Feb 20 05:46 AM

[Steve in Gr...:]

There is a fifth issue pushing stocks lower. For the next two years, leftists have control of both the U.S. Executive and Legislative branches. In the first month, they have passed legislation that is absurdly expensive and wildly anti-capitalist. They have promised to pass more, including union-card-check, carbon taxes, nationalized healthcare, higher income taxes, etc.

Prudent businessmen and prudent investors will wait out the next couple of years. And hope for better days in the future.

Feb 20 07:48 AM

[patio:]

This is absolutely accurate. The porkulus package is leftist politics to the extreme, Jefferson would call it treason. In a time of crisis, the leftists have blatantly spent hundreds of billions on cronyism ( ACORN; unions; all the usual suspects ). The American people are indeed sheep to be shorn, such a travesty.


On Feb 20 07:48 AM Steve in Greensboro wrote:

> There is a fifth issue pushing stocks lower. For the next two years,
> leftists have control of both the U.S. Executive and Legislative
> branches. In the first month, they have passed legislation that is
> absurdly expensive and wildly anti-capitalist. They have promised
> to pass more, including union-card-check, carbon taxes, nationalized
> healthcare, higher income taxes, etc.
>
> Prudent businessmen and prudent investors will wait out the next
> couple of years. And hope for better days in the future.

Feb 20 08:18 AM

[henarl:]

Well, the bush administration didn't do any better. EVERYBODY in Washington, and on Wall St., is corrupt and self serving regardless of which party is in temporary control.

Feb 20 11:32 AM

[TheDecider:]

Good article. I would add GM to the list. Remember how much panic that added to the markets in November? Now it's an afterthought even though they're threatening bankruptcy.

Feb 20 12:29 PM

[Aristophanes:]

Another one, perhaps as big as al the others:

Worldwide trade implosion.

Who you gonna sell to? Who has credit to buy? Which currency do you deal in? Where's the insurance and how much does it cost?

Feb 20 07:06 PM

[MJJP:]

Why nationalize the banks when the govts involved can simply say they will guarantee their performance for a set time period?(example 2 or three years) Any claims needed by the banks would have to be made good on at the expense of dividends for starters.

Feb 21 07:46 AM

[Ecomike:]

Sounds like pessimism is peaking here. TIme to buy!

Oh, and the SKY is Falling!!!

Feb 21 04:47 PM

[Ecomike:]

Check the BDI, and this weekends news on COSCO and European resumption of buying Brazil Iron Ore. International trade is resuming.

But you do hit on part of what caused the crash in my opinion, unstable energy, commodity and currency markets caused by excessive gambling!


On Feb 20 07:06 PM Aristophanes wrote:

> Another one, perhaps as big as al the others:
>
> Worldwide trade implosion.
>
> Who you gonna sell to? Who has credit to buy? Which currency do you
> deal in? Where's the insurance and how much does it cost?

Feb 21 04:50 PM

[The Pragmat...:]

I actually agree. If you read my blog (pragcap.com) you'll notice that I have been very bearish for years. However, there are signs that a bear market rally could occur some time in the next few weeks. In the longer term the outlook remains decidedly bearish. Sentiment is overly negative in the near-term which generally makes shorting risky and could set the table for a spring loaded short covering move to the upside....


On Feb 21 04:47 PM Ecomike wrote:

> Sounds like pessimism is peaking here. TIme to buy!
>
> Oh, and the SKY is Falling!!!

Feb 21 08:14 PM