Why the US Markets Will Continue to Struggle

This past week was a difficult period for market optimists. As we approached the Memorial Weekend, the Dow had fallen by around 500 Points and the jobless figures were the only highlight of an otherwise gloomy week.

Here are the reasons to expect the market to continue to drift lower over the coming weeks

1. The FED will only cut rates further if an absolute disaster hits the market, such as a Bank or Monoline folding.
2. The FED economic outlook has been downgraded (again) with growth in the range of 0.3% to 1.2%.
3. Housing inventories are rising, now over 11 months.
4. Oil prices are expected to rise. (To somewhere between $160 and $200 per Barrel.)
5. Retailers are continuing to retrench from planned expansion, others are closing stores, and the worst affected face chapter 11.
6. The long awaited Commercial Real Estate Value depreciation appears to have started. (Two months of negative growth.)
7. Financials are still undercapitalized to deal with Alt-A, Etc.
8. The CPI Inflation figure, is a bad joke. (It has been underrated for years.)

Bearing in mind the CPI figure, it is likely that with a proper inflation estimate, the US economy is already in recession, as growth assumptions are also affected.

The only sectors that appear to be rising are Commodities, such as Oil and Metals.

During this coming year it will be extremely difficult for corporations to pass on the full inflation costs to their customers, so margins will tighten considerably. Therefore, if margins drop by 33%, the P/E figure will rise by 50%. This indicates the current market values are overvalued by a considerable margin.

I expect the Dow to continue to drift lower, shedding between 10% and 20% of its current value, over the coming 15 months

Comments

[ed auerbach]

You forgot to trll us which stocks you are short

[Dweeb]

You skipped a couple more sectors which are rising.
Shipping is up big and still climbing.
Agriculture stocks are soaring with no pull back in site.
Railroads are still profitable.
Coal and nat. gas stocks are also reaching higher.
P/E figures are actually lower, indicating profitable companys are oversold and undervalued.
Dividend yields are very juciey in companys with solid profits.
I love free market capitalism. My glass is half full!

[galewhitaker]

Dweeb
The world may have passed peak oil. If so, no amount of optimism is going to save the market. Since hundreds of millions of people in Asia can fill their tanks with subsidized gasoline at 45 cents/gal. I don't think the demand for oil is going to wane anytime soon.

[ATHELSTAN]

and this senile simp John McCain and the Republicans think they will be victorious in November??? LOL LOL LOL LOL

[chrism1962]

Thank you for your comments,

Just to confirm I have no interests to disclose, but I would be short on Financials, Retail (except for Walmart), Property, Automobiles, Airlines and Housebuilding. I am neutral on Commodities and Energy, and long on Materials, and Industrials ( which export over 50% of product - and do not have 45% as Financials (GE)).

Chris Marshall