21 stock market warning signs giving global investors cold sweats
Sam Ro, Business Insider | 13/05/27 | Last Updated: 13/05/27 11:32 AM ET
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This past week saw the stock market sell-off a bit.
With markets near all-time highs, is it possible we’ve seen the top?
“They come and go,” said Jack Bogle, warning that the market is probably due for a 25-50% sell-off. “I went through one in 1973-1974, I went through one in 2001, 2002, 2003; I went through another one 2008-2009. They’re kind of scary — often terrifying — but it’s typical
Indeed, the bears seem to have an overwhelming number of reasons to be worried.
We’ve compiled 21 big warning signals that are keeping the stock market’s bulls on edge and its bears on the sidelines.
First, there are signs that the latest buyers are buying recklessly.
Also, there is a lot of proof that the outlook for demand is deteriorating, profits are falling, and profit margins are too optimistic.
And it’s not just a single company or industry sending warning signals. The breadth of warnings is both historic and startling.
If you’re an investor thinking about making a move in the stock market, then you should probably consider these warning signals.
Doug Short
Source: Doug Short
“Expectations of price increases (inflation) are a sign of potentially stronger demand growth and higher margins, which is a positive for stocks.”
Source: @ParagonCap
US Equity Strategy, May 20, 2013
Morgan Stanley
“Revenue growth relative to expectations has been weak recently (Exhibit 27), despite companies cautiously managing expectations. Without reasonably strong revenue growth, there is increasing risk to the profit margin estimates embedded in consensus.”
Source: Morgan Stanley
UBS
HSBC Flash China Manufacturing PMI, May 2013
US Equity Strategy, May 20, 2013
Morgan Stanley
“While US capacity utilization has risen, recent trends have shown its rate of change has slowed (Exhibit 17), which can weigh on pricing. In fact, recent month-to-month data are the worst in five years. So, we expect a slightly better economy in the second half, slightly better pricing power, and not a lot of capital spending. We have not seen in the industrials or technology sectors any signs of backlog cancellations or extensions, book-to-bill increases, or difficulty in delivering product. So tactically, we don’t think capital spending pickups are likely based on the higher frequency data we analyze.”
Source: Morgan Stanley
Deutsche Bank
Source: Deutsche Bank
US Equity Strategy, May 20, 2013
Morgan Stanley
“Consensus estimates for 2013 have fallen, but we think they will likely decline further (Exhibit 21). Analysts are embedding 8% earnings growth in 2013, followed by 11% growth in 2014. In our minds, the debate isn’t whether the consensus estimates are too high. Rather, the debate is whether anyone will care. For the last year, estimates have declined and the market has rallied.”
Source: Morgan Stanley
JP Morgan via Marc Chandler
Source: JP Morgan via Marc Chandler
US Equity strategy, May 20, 2013
Morgan Stanley
“The ratio of negative-to-positive guidance remains at multi-year highs – currently 4.1 for second quarter 2013, as companies continue to pare back expectations (Exhibit 24).”
Source: Morgan Stanley
US Weekly Kickstart, May 10, 2013
Goldman Sachs
US Equity Strategy, May 20, 2013
Morgan Stanley
“Analysts are forecasting the highest fraction of companies to post year-over-year margin expansion in our data history, despite the already near-record profit levels today (Exhibit 23).”
Source: Morgan Stanley
“Almost universally, Wall Street analysts are making the mistake of valuing stocks on the basis of a single year of forward operating earnings, as if the present estimate is a sufficient statistic that is representative of the entire future stream of cash flows. Even profit/GDP shares much less extreme than today’s havealways been followed by a contraction of profits over the following 4-year period.”
Source: Hussman Funds
Bianco was a lone bull telling clients to buy stocks going into the sequester. But even he recognizes that the deteriorating outlook for profits, the slowdown in manufacturing, and the deceleration in exports is not good.
“Brief dip likely during worry season, “Next 5%+” price move is likely down“
Source: Deustche Bank
REUTERS / Tim Shaffer
“I went through one in 1973-1974, I went through one in 2001, 2002, 2003; I went through another one 2008-2009. They’re kind of scary – often terrifying – but it’s typical.”
Source: Jack Bogle, CNBC
Gluskin Sheff
“The gold-silver ratio has risen to its highest point in three years (August 2010) and in the past this served as a flash-point for a renewed risk-off trade. See the chart below and the divergence (S&P 500 surging and the gold-silver ratio sliding — historically this has a 71% correlation, likely because silver has far more industrial applications and as such this ratio is viewed as somewhat of a global economic barometer.) I have to say that when I read the front page of the USA Today business section and see this lead title: With Stocks This Hot, Why Worry?, with famed strategist Ed Yardeni declaring this to be the “mother of all melt-ups,” I do begin to worry. The bull market may well be in complacency.”
Source: Gluskin Sheff, David Rosenberg
Related posts:
Source: http://www.prospectingjournal.com/21-stock-market-warning-signs-giving-global-investors-cold-sweats/
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