Four topics continue to dominate the market action. In my opinion, the market is destined to remain range bound or under pressure until we get some clarity on the these 4 topics that are keeping a lid on stocks:
1) Earnings
The S&P just reported its first ever negative quarter in terms of “as reported” earnings. Companies have been cutting guidance or eliminating guidance at a pace never before seen. Earnings are the primary driver of stock prices and it will be impossible for any sustainable rally to mount before we get some clarity in earnings.
2) Bank nationalization?
The consensus seems to be moving more and more towards the realization that nationalizing the banks is a necessary evil. I wrote the Fed over 5 months ago regarding this plan. It appears as though the idea is finally gaining some traction. It’s highly improbable that the banks will trade higher as long as this uncertainty is hanging over the markets. Bank of America and Citi are certainly trading as if they’re on the chopping block….
3) Eastern European Uncertainty
The recent developments in Eastern Europe are troubling to say the least. Europe’s economy is slipping into a deep recession at an alarming pace. With high interest rates (comparatively), a bloated currency (FXE) and a mountain of outstanding emerging market debt Europe certainly appears to be the greatest risk to the global economy at this time.
4) Commercial Real Estate
Commercial real estate appears to be imploding before our eyes. The market was very ugly in October, but did not reach panic levels until CMBS began to blow out in the middle of November. We are beginning to see the same kind of action.
Until the get some clarity on these four issues it’s hard to imagine that this market will break out of this range bound trading. And that’s if it doesn’t break down entirely beforehand….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.