Tags: worry | investor | growth | stocks

WSJ: What Investors Should Be Worrying About

By    |   Tuesday, 03 June 2014 02:00 PM

With stocks at record highs, interest rates low and inflation mild, why should you worry?

Investors have plenty to worry about. The Wall Street Journal lists five reasons to worry, giving each a 1 to 10 "worry level" ranking.

Earnings and the economy is the top worry with level of 8. The economy continues to sputter, and corporate earnings are lackluster.

Editor's Note:
38 Investments That Profit 96% of the Time (Free Video)


GDP growth reversed course, falling 1 percent in the first quarter, the first drop since 2011, while profits of S&P 500 companies rose 2 percent in the second quarter from the same quarter last year, far short of the previous quarter's 8.5 percent increase.

What the Federal Reserve might do ranks as a level 6 worry. Many analysts believe the Fed's bond purchases have helped boost stocks. So what happens as the Fed slows and then stops those purchases? While some experts predict a stock market collapse, The Journal notes, others say the Fed won't impact stocks until it signals possible rate increases, which could be at least a year away.

China and global growth is also a level 6 worry. China's economy, the world's second largest, is key to global growth, but its prospects are questionable. Its real estate market is faltering, and home values and construction is down. Optimists suggest India, with the help of government reforms, could take up the slack in the global economy.

Stock valuations come in at a level 4 worry. Some observers worry stocks, especially small company stocks, have become too expensive, a sign of an impending downturn.

The S&P 500 price-earnings (P/E) ratio is 16.7 based on earnings for the past 12 months and 15.4 based on expected profits, The Journal notes, citing FactSet data. The average P/E ratio for the past 10 years is 14.5 based on the previous 12 months earnings and 13.9 based on expected earnings.

Finally, investor confidence is a level 3 worry. Widespread love of stocks and well-known bears turning bullish could be contrarian indicators.

"Bulls outnumber bears in a range that is close to levels that preceded the 2008 decline," Darren Pollock, portfolio manager of Cheviot Value Management, tells The Journal, citing data from the Investors Intelligence Advisors Sentiment Index.

However, there are other things investors should be worrying about.

Falling consumer spending is the biggest risk to the stock market, according to MarketWatch.

April retail sales increased just 0.1 percent, far short of expectations. The tiny increase calls into question the argument that March retail sales represented a rebound, writes MarketWatch columnist Jeff Reeves.

Plus, the housing market is cooling, which might have a huge impact on consumer spending this year, he adds.

Editor's Note: 38 Investments That Profit 96% of the Time (Free Video)

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With stocks at record highs, interest rates low and inflation mild, why should you worry? Investors have plenty to worry about.
worry, investor, growth, stocks
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2014-00-03
Tuesday, 03 June 2014 02:00 PM
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