After this year’s advance, the best in a decade, are U.S. stocks poised to decline? Several Money and Markets editors and money managers say that could well be.
Consider: Major U.S. equity averages are near all-time highs. The S&P 500 has gained 28 percent this year, and it is trading at more than 16 times expected 2013 earnings, the highest price-to-earnings ratio in three years, according to Mike Burnick. And in 2014, average earnings growth at S&P 500 member companies is seen by some analysts at an uninspiring 6 percent.
“It’s starting to look like we’re very, very close to a setup that would trigger a ‘sell’ signal here in the S&P 500,” said Master Trader Editor John Ross Crooks, “and more likely we’ll see the others follow.”
“Negative divergences” have started appearing in the momentum indicators in the past few weeks, said Burnick, a money manager and former director of research for Weiss Capital Management.
“That indicates we’re not only over-bought, but we’re starting to see momentum weaken a little bit,” he said. Stock markets, he said, are “looking a little bit tired right now.”
Still, December and January are typically kind to the markets if the first 11 months of the year were good, so downturns may not be on the horizon, editors said.
“The market has gotten to the brink of a correction quite a few times in the second half of this year, and it hasn’t broken down, so maybe we’ll see more of the same since both December and January are seasonably strong months,” Burnick said.
To be sure, no one is predicting anything dramatic: “I’m not looking for a major collapse, but I do think it could be a bigger downside than we’ve gotten used to this year,” Crooks said.
And as Burnick points out in a separate Money and Markets piece, more gains are usually seen in the year following one with strong advances such as seen so far in 2013.
And the bond market? The recent poor showing of utilities is a harbinger for bonds, said Safe Money Report Editor Mike Larson.
“The bond market still isn’t pricing in the reality” that the country is out of crisis mode, and rates will go up, Larson said.
The Money and Markets Team