Tags: stock | market correction | Kaltbaum

USA Today: Wall Street Awaits a Stock Market Correction

By John Morgan   |   Friday, 17 May 2013 08:13 AM

The Standard & Poor's 500 Index is up a rarefied 140 percent since the low of March 9, 2009, high enough for many investors to feel among the clouds. That begs the question of when the next big correction will occur.

The topic of the next pullback is a hot one on Wall Street, according to USA Today.

"Being called 'high-end' is usually good when referring to autos, wines or watches, but not to stock market measures," Sam Stovall, chief equity strategist at S&P Capital IQ, wrote in his latest outlook. His firm is warning clients that stocks could drop 8 percent to 10 percent from current levels, according to USA Today.

Editor's Note:
Billionaires Dump Stocks. Prepare for the Unthinkable.

Some equity professionals are crediting the Federal Reserve's ultra-loose monetary policies for the stock market's lofty performance, USA Today said. Those policies have driven yields on bonds to multi-decade lows, which tends to drive money into stocks as a better alternative.

Gary Kaltbaum, president of Kaltbaum Capital Management, said the Fed's hefty $85 billion monthly bond purchases are clearly not permanent, and when it ends, the stock market will be hit hard.

"There has been a direct correlation between all this money printing and the markets going back to 2009," Kaltbaum told USA Today.

"You have to realize, that is a lot of money being printed, an over-the-top number that is a Depression-type number. Yet they are printing while the economy is expanding.

"It feeds on itself," said Kaltbaum of the stock market's persistent Fed-induced momentum. "I suspect this ends badly but don't know when and from where."

However, Mark Luschini, chief investment strategist at Janney Montgomery Scott, is more sanguine.

Luschini predicts a drop of close to 20 percent, like the one back in 2011, is unlikely, USA Today reported. He said fears of Europe's implosion have declined and the domestic economy is strengthening because of improvements in housing, jobs and capital spending.

MarketWatch columnist Charles Sizemore recently noted that Wall Street's "big money" managers are high on U.S. stocks by a wide margin — 74 percent were bullish and only 7 percent were bearish in Barron's poll results he cited.

Sizemore said some global macro hedge fund managers are not looking so smart these days. He noted 88 percent of them underperformed the S&P 500 last year.

One well-known hedge fund titan, Stanley Druckenmiller, predicted at an industry conference that the commodity super-cycle — the huge decade-long bull market in most commodities — is over because of a demand slowdown in China.

If that is true, companies with large raw-materials costs and countries that import large volumes of commodities will benefit, Sizemore said. But at the same time, resource-rich like Brazil, South Africa and Australia will suffer, he concluded.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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