1) Economic Data Continues to Weaken-After a nice data run into September, the numbers have suddenly turned ugly, taking Q2, 2016 GDP down to 1.4%.
Sluggish corporate earnings this year should rebound in 2017, as the European and Chinese drags dissipate. They should improve going into Q4 and Q1, 2016. But if they don't, watch out below.
2) The Fed Raises Interest Rates in December- This has been the world's greatest guessing game for the past three years. With China stabilizing, and the US stock market at all time highs, the path is open for our central bank to raise interest rates for the first time in a decade.
Janet Yellen lives in perpetual fear of the American economy going into the next recession with interest rates at zero! That would leave them powerless to do anything to engineer a revival.
We could get a 5% mini correction in stocks off the back of a December surprise, especially if the stock indexes go into the announcement from a high level. But, I doubt we'll see more than that.
3) Another Geopolitical Crisis- You could always get a surprise on the international front. But the lesson of this bull market is that traders and investors could care less about ISIS, Al Qaeda, Afghanistan, Iraq, Syria, Russia, the Ukraine, or the Chinese expansion in the South China Sea.
Every one of these black swans has been a buying opportunity of the first order, and they will continue to be so. At the end of the day, terrorists don't impact American corporate earnings, nor do they own stocks.
4) A Recovery in Oil- Texas Tea (NYSEARCA:USO) is clearly trying to bottom here, now that we are at the nadir of the supply/demand balance. If it recovers too fast, and rockets back to the $70 level, we lose some of our energy tax windfall.
On the other hand, if an OPEC production cap fails to gel in November, it could take crude down to new lows and the energy sector and the broader stock market with it.
5) The End of US QE- The Fed's $3.5 billion quantitative easing policy ended two years ago, and, since then, the return on US stocks has been low single digits, save for the odd special situation (Amazon, Netflix, etc.). Anyone who said QE didn't work obviously doesn't own stocks. Still to be established is whether stocks can rise without QE.
6) A New War - If the US gets dragged into a major new ground war, in Syria, Iraq or elsewhere, you can kiss this bull market goodbye. Budget deficits would explode, the dollar would collapse, and there would be a massive exodus out of all risk assets, especially stocks.
However, it is unlikely that pacifist president Obama would lets thing run out of control in the Middle East, nor would a future president Hillary. Better to leave it to the Russians.
After all, their move into Afghanistan in 1979 worked out so well for them. It caused the demise of the old Soviet Union. Their current foray into Syria isn't looking like a winner either.
7) The European Refugee Crisis Worsens - If the numbers get too big, there are supposed to be 4 million refugees en route, and it would demolish Europe's (NYSEARCA:FXE) economic recovery.
Unfortunately, the enormous influx of Islamic migrants into Europe has already led to the resurgence of Nazi parties in Sweden, Denmark, and the Netherlands. Some are showing up with their 13 year old brides.
Good for Germany for doing the heavy lifting here. After all, they did happen to have a spare empty country at hand, the old East Germany. With a collapsing birthrate, it was the smartest thing they could have done to boost their long-term economic growth.
8) Another Emerging Market Crash- If the greenback resumes its long-term rise, as I expect, another emerging market debt crisis is in the cards. With US rates rising and European rates falling, how could it go any other way? This is because too many emerging corporations have borrowed in dollars, some $2 trillion worth.
When their local currencies collapse, it has the effect of doubling the principal balance of their loans, and doubling the monthly payments, immediately. This is the problem that is currently taking apart the Brazilian economy right now. It happened in 1998, and it looks like we are seeing a replay.
9) China Goes Into Recession- So far, the Middle Kingdom has resorted to cutting interest rates, easing bank reserve requirements, and selling big chunks of its US Treasury and Eurobond holdings to reinvigorate its economy. What if it doesn't work? Look for a new China scare to hit US stocks, and don your hard hat.
10) Interest Rates Start to Rise - I have already chronicled the sudden shortages in truck drivers, airline pilots, and minimum wage workers at Amazon fulfillment centers. What if wages really start to take off, and the trend towards 40 years of falling real wages reverses?
That would bring substantial interest rates hikes, a rocketing dollar, true inflation, and eventually, a recession. 2017 anyone?
11) Donald Trump is Elected President - I doubt the Donald has seriously thought out his economic policies, and most of what he has proposed is unenforceable under current US law. But he still is coming in at 39% in the national four way polls, or a little better than Adolph Hitler did in the German 1933 election.
What if Hillary then develops a major health problem and has to drop out of the race? What if The Donald learns how to debate this week? The implications of a Trump presidency are hard to fathom, but it certainly would NOT be good for the stock market. This is an outlier, but not impossible. I'm thinking a minimum of a 25% hickey in stocks, with the worst coming after election day and before the inauguration.
I know you already have trouble sleeping at night. The above should make your insomnia problem much worse.
Try a 10 mile hike every night. It works for me.
Down the Ambien and full speed ahead!
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.