A good piece of research here out of JP Morgan citing the 6 risks to the markets in the near-term. Point 6 has the potential to become particularly worrisome as we move into earnings season over the next few months. The current earnings are likely to be relatively strong once again, but the outlooks going forward are almost certain to be tempered given the recent uncertainty abroad. Plus, I’d say the odds of a profits recession in 2013 are increasingly high. Here’s JP Morgan:
“1. Global macro momentum continues to weaken. Composite PMIs are now down for 3 months in a
row. Cyclicals have further downside from here.
2. Eurozone remains a big concern. This is the one area where most are bearish already, but we would not
underestimate the ability of Euro policymakers and of Euro activity to underwhelm even the low
expectations. We expect further downside to Euro dataflow. M1 suggests Euro PMIs could be as low as 40
3. We encounter complacency on the US. Most still believe ’12 will not be a repeat of ’11, but US EASI is
negative and making new lows. Historically, the market did poorly in the aftermath of this. S&P500 fell
16% in the summer of ’10, 19% in summer of ‘11 vs “only” 10% so far.
4. There is no rebound in the Chinese activity. Actually the opposite is the case, but the consensus still
expects a sequential improvement in 2H. Policy response is minimal so far. House prices are falling. Most
are buyers of Chinese consumer plays and these are trading at record highs. Will the house price deflation
not hurt consumers? Brazil GDP continues to be downgraded. Its current 2% growth pace is a far cry
from an economy which grew 7.5% in ’10. Indian GDP growth is at the lowest pace in 9 years.
5. Is there a marginal buyer of stocks? Corporate buybacks have rolled over, retail outflows continue. HF
beta at a 3-year peak has produced a good sell signal in the 2H of March. Technicals are not in “buy”
territory yet. Investors are bearish, but the hope for a policy response is widespread. We hope that it comes
6. Q2 reporting season has a high hurdle rate, especially in contrast to Q1.”
Source: JP Morgan