BANK OF AMERICA: 4 BIG RISKS TO THE BULL MARKET
Bank of America has a nice note on the biggest risks to the current bull market and why they’re growing increasingly concerned about the potential for a second half slow-down in the USA (via Zero Hedge):
Risk #1: Oil prices
At this stage we consider the risk of higher oil prices – due to an escalation of the nuclear stand-off with Iran – as the biggest risk to our outlook between now and the middle of the year.
Risk #2: Europe
Until the PSI this was #1. However, clearly important risks remain both in the short and long term. What we as credit strategists are most concerned about is eroding/lacking public support for the fiscal checks and austerity programs that are being implemented across the Euro-zone. We are particularly concerned about the peripheral countries where unemployment rates are very high. Even if governments support unpopular austerity agreements, there is high risk that sitting governments may lose power to oppositions that are less committed.
Risk #3: US economy
To us, the US economic risk appears more back-loaded toward the last part of the year than of immediate concern. In fact, due to automatic fiscal tightening to the tune of about 4.5% of GDP in 2013, our economists have an out-of-consensus outlook for a slowdown in economic growth to 1% in 4Q, as companies anticipate the tightening.
Risk #4: China
China is a perennial constituent of our list of biggest risks. However, as usual we put this risk toward the end – not because of a small expected impact but because it is less likely to materialize this year. Early this week the markets were spooked by China lowering its official GDP growth target for the year to 7.5% from 8.0%.
Read more at Zero Hedge.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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6 Comments
Why not just say the risk is
#1 Everything.
Interesting. The departure of David Bianco must have really made a difference.
All of a sudden these banks are bearish?
Goldman Sac’s David Kostin bearish + now BOA bearish = market to new high .
Interestingly they seem to think that austerity is good for the EU but bad for the US.
I don’t think they’re promoting EU austerity, but they’re recognizing that any of the periphery nations refusing to comply with EU agreements increases the risk of a EU exit or more defaults.
There are ton of risks. First Europe has rolled over in terms of growth and that will effect US growth and hence earnings. The dollar has been rallying stongly against everything Japan, Europe. 10% in yen over past month, back down to 1.30 ish in euro. Lets see how Dow and SP multinationals fair as dollar continues this trend is unlikely to change anytime soon. Euro will go sub 1.15 an dollar yen 100. Factor that into US comapnies earnings even without the fact that the economy has peaked. Finally Iran and Israel make me a market on the dow if that ever happens. People are worrying about oil at 106 or 110. What if you can’t get oil? Gas lines hmmm. Middle East has been burning for 2 years now the odds of oil issues is fairly high. Oh and apple that has dragged the Nasdaq up. This stock has gone from 360 to 568 i since december. This is a company that has more than doubled its revenue with two products an Iphone and an IPad. That is great doing well, but the earning are no longer diversified and the phone space we know how volatile that is. I do believe Apple has loyal fan base and people buy no matter how many screens etc crack, but all it takes is production problem, a recall, a typhoon in the wrong place. This stock is up 57% in 3 months can it drop certainly doesn’t have many technical support close by. Today’s rally based on JPM increasing dividend wow. Citi report looked lhorrible and the banks in Europe who borrowed from the ECB at 1% are parking a trillion euro with ECB for 25 basis points, because they won’t deal with one another. Not exactly a vote of confidence. It won’t take much to turn this market. We are now at the panic money manager buying stage “I missed this for too long melt up”. I give this rally two weeks. One more running, one of distribution and then they will stop ignoring the cracks all around them.