Thursday morning, Doug Kass gave us his short list of why stocks ought to take a stumble:
1. The price of gasoline rises to a new high, serving as the functional equivalent of a tax increase for the U.S. consumer.
2. Tech bellwether Cisco's (NASDAQ:CSCO) U.S. business enterprise is weak, and guidance for aggregate sequential revenue growth (of +4%) is disappointing.
3. Other tech companies like Novellus (NASDAQ:NVLS), Nokia (NYSE:NOK), SanDisk (SNDK), Flextronics (NASDAQ:FLEX) and Sanmina (NASDAQ:SANM) disappointed. The much-heralded release of Vista has failed to meet expectations (and has led to a buildup in PC component parts). DRAM prices fall by nearly 70% to below cash production costs. Electronic Arts (ERTS) , Best Buy (NYSE:BBY) and Circuit City (NYSE:CC) guided lower, raising questions about the health of consumer electronics.
4. Multinationals offset end-market weakness in the U.S. by the effect of a weak U.S. dollar. More astonishingly, investors consider the foreign exchange gains as recurring.
5. The multiplier effect of the housing downturn hits many building materials companies like Mohawk Industries (NYSE:MHK) , Home Depot (NYSE:HD) and Graco (NYSE:GGG) whiff, but rumors of private-equity deals bail investors out.
6. The U.S. dollar trends lower and lower, and the likelihood of rising interest rates in Europe and in Asia suggests interest rate differentials will widen further (putting further pressure on our currency).
8. The plethora of mortgage resets -- the single most important factor pressing the U.S. consumer -- is dismissed.
9. The sublime mess is dismissed, despite growing evidence that the credit contagion is spreading to motorcycle securitizations, automobiles and elsewhere.
10. REITs trade above intrinsic value, and dividend yields are at all-time lows relative to another new paradigm.
11. Trucking and airline companies' results are worse than expected, and forward guidance is reduced.
12. Banks' net interest margins are threatened by competition (and industry saturation) and an unfavorable yield curve as credit losses rise.
13. Leading indicators fall for three consecutive months, and the household and payroll survey of jobs throws more caution to the wind.
14. The popularity of the Republican administration hits new lows as the probability of a Democratic 2008 win increases, raising the specter of the politics of trade protectionism, a more powerful view toward antitrust and higher dividend and corporate tax rates.
15. Over there, speculation continues apace in emerging markets (especially of an Asian-kind). China becomes the epicenter of the world's speculation in equities.
Of course, all these reasons existed yesterday, and will exist tomorrow.
My thesis is that each FOMC meeting is greeted by a sideways action prior to the FOMC announcement, followed by a rally, followed by a sell off. This FOMC meeting followed the script pretty perfectly.
15 Reasons Stocks Should Be Falling
Street Insight, 5/10/2007 2:56 PM EDT