Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter


Is The Stock Market Plunging Over An Earnings Cliff?

Stock-Markets / Stock Markets 2012 Oct 27, 2012 - 05:31 AM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleThe previous worries of the market seem to be fading away, only to be replaced by a new one that is perhaps more directly meaningful to stock market valuation.

The U.S. economic slowdown of the spring and summer months appears to have bottomed. Home sales, new home starts, and home prices, have all been rising. The employment numbers have improved so much that skeptics even suspect the government must have somehow manipulated the numbers. Retail sales have been picking up. The latest reading of the University of Michigan Consumer Sentiment Index shows consumer confidence is at its highest level since 2007. On Friday it was reported that the U.S. economy (GDP) grew 2.0% in the 3rd quarter, up from 1.3% in the second quarter, and better than the consensus forecast of 1.8%.

 In Europe, the eurozone debt crisis has certainly not been resolved. But the worry has been moving to the back burner on the thought that the EU and ECB have finally put measures in place that can at least kick the crisis further down the road again.

In Asia, China, the world’s second largest economy, has seen its economy slow so dramatically that fears are high that it’s headed for a ‘hard landing’ that would be a further drag on world-wide economies. But recent reports have shown some improvements in China’s retail sales, exports, and factory output.

A remaining big concern is the ‘fiscal cliff’, the automatic expiration of the Bush-era tax cuts at the end of 2012 unless something is done. It’s estimated the impact would take $560 billion out of the economy, cutting GDP by four percentage points in 2013, and put the economy, currently running at only 2% growth, into a recession.

I have contended all along that the fiscal cliff will be resolved, or at least kicked further down the road, but only at the very last moment, which has been the hallmark of how this dysfunctional Congress operates.

I still expect that to happen, and pressure is now on Washington like never before to act responsibly.

The Financial Services Forum, which is comprised of the CEOs of 20 of the largest U.S. financial firms, recently sent a letter to the White House and members of Congress, saying, “At a time when economic growth is less than 2%, and with nearly 25 million Americans either out of work or underemployed, the still-fragile U.S. economy cannot sustain – and the American people do not deserve – the impact of more gridlock in Washington.”

 A letter last week signed by 80 CEOs of major U.S. corporations, including G.E., Boeing, Verizon, Aetna, etc., added more pressure, not only urging Congress to get its act together and find a solution to the fiscal cliff, but offering specific initiatives.

These are major financial contributors to politicians, liable to carry more weight than pleas from ordinary Americans.

So there is more hope than before that perhaps even this previous big worry will be taken care of.

Yet, the stock market chooses now as the time to roll over into a potential correction? What’s going on?

The new problem worrying the market is 3rd quarter earnings reports, which show S&P 500 earnings growth turned negative in the 3rd quarter for the first time since 2009, and corporate warnings of similar deterioration in coming quarters.

So we have a market that managed to continue its bull market through worries about slowing global economies, the worsening eurozone crisis, and the looming fiscal cliff, now potentially rolling over due to what some analysts have begun calling the ‘earnings cliff’.

There is reason for the concern. In the final analysis earnings do matter and are the basis for determining the value of a business and its stock. So there is reason to remain cautious and to expect the market still has further work on the downside ahead of it for the short-term.

I and my subscribers are still in downside positioning in inverse etf’s, and I expect a continuing correction, perhaps significant, as in a double-digit decline.

However, in spite of the new fears of the market plunging over an earnings cliff, I don’t expect the bull market to end just yet.

The 3rd quarter earnings reporting period will end in another week or two. That will give the market some relief from those worries until mid-January when 4th quarter earnings begin to be reported.

I expect positive hints regarding the fiscal cliff will soon begin appearing, and if the improving signs in the U.S. economy continue, the catalyst will be in place for the correction to end, and a favorable season rally to new highs by year-end.

So remain cautious and defensive for now, but remain alert and ready to move in for a potentially substantial and typical favorable season rally.

If I’m wrong and the correction doesn’t end, the current downside positioning will be even more important.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules