Tags: Faber | stocks | peak | difficult

Faber: 2013 Will Be a ‘Difficult’ Year for Stocks

Thursday, 16 August 2012 08:52 AM

Stocks may have hit their peak recently and could be in for a rough ride in 2013, says Marc Faber, author of the Gloom Boom & Doom report, although there could be a false rally in the late summer or early fall.

The Standard & Poor’s 500 stock index is trading around 1,405, down from a 52-week high of around 1,422, though fewer and fewer businesses are bringing in revenue and growing enough to keep the economy and stock markets moving forward.

A downward turn will probably prompt the Federal Reserve to intervene with a third round of quantitative easing (QE3), which involves the U.S. central bank buying Treasury holdings and mortgage-backed securities held by banks, a move that pumps up stock prices to help fuel recovery.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The Fed has already intervened with QE1 and QE2 in the past, and a third round of asset purchases will bring a muted response.

“How low will we go? I think if the market drops 150 points on the S&P, we will have QE3 and QE4,” Faber tells CNBC.

The market will bounce if the Fed intervenes, but not to highs seen earlier this year.

“Maybe we make a marginal new high and then we drop again, but I think 2013 will be a difficult year for equities.”

“There are fewer and fewer stocks that are driving the advance,” Faber says.

The United States is home to a few strong stocks like Kimberly-Clark, Johnson & Johnson and Merck, but is also home to deeply oversold stocks such as those tied to economic-sensitive sectors like mining, Faber notes.

A rebound in those stocks plus financials in general could keep the rally going, but for only so long, as the broader rally is in a maturing stage and not in an embryonic bull run.

“I would be rather careful because we are coming into a difficult period in October or November when the markets frequently crash.”

Markets, however, might not even get support from the Fed as expected, other economists say.

In recent weeks, stocks have risen on disappointing indicators as investors have been betting that a sagging economy will prompt Fed action, and have been buying in anticipation of monetary intervention.

The Fed may have taken note of such gains and may decide to forgo or delay intervening, concluding that anticipatory stock buying jolted the economy in much the same manner as intervention itself.

Some economic indicators are already improving.

The U.S. Commerce Department reported that retail sales jumped 0.8 percent in July after a 0.7 percent drop in June.

It was the first gain in three months.

“The U.S. economic data continue to look a bit stronger. Tuesday’s retail sales report for July beat expectations, while inventory accumulation showed a further slowdown in June. Our Q3 [gross domestic product] tracking estimate edged up to 2.3 percent. The recent news also has implications for Fed policy,” Goldman Sachs’ chief U.S. economist Jan Hatzius wrote in a note, according to Zero Hedge.

“While QE3 at the September 12-13 [Federal Open Market Committee] meeting remains possible, our best estimate is that it will take until late 2012/early 2013 before Fed officials return to balance sheet expansion.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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Thursday, 16 August 2012 08:52 AM
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