Stocks are fairly valued at current levels, but they could drop 10 percent if the debate over raising the debt ceiling gets ugly, says Hugh Johnson, chief investment officer of Hugh Johnson Advisors.
“The debt ceiling itself doesn’t matter that much,” he tells Yahoo. The issue is what happens to spending cuts, as Republicans are insisting on deep cuts in exchange for approving a debt-limit increase.
If Congress and the president agree on steep spending cuts, stocks will likely fall amid fear of a recession, Johnson says.
Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.
“If you’re a trader, you have to play this on the short side. If you’re an investor, hold back,” he says.
Johnson expects stocks to rise only 1 or 2 percent more for the rest of the year. “That means the stock market has to be about 10 percent lower” to making buying attractive, Johnson says. And the “theatrics of the debt ceiling” may well spark such a move, he says.
A 10 percent drop from Wednesday’s close for the Standard & Poor’s 500 Index would put it at 1,326.
Many investors are now focused on fourth-quarter earnings reports. “[S]o far, we’re relatively pleased with what we’ve seen,” Brad Sorensen, director of market analysis for Charles Schwab, tells Bloomberg.
“We’ve had a good start to the year in stocks. There’s quite a bit of money on the sidelines that could provide a nice boost higher.”
Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.
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