Tags: Horowitz | correction | sidelines | stocks

Strategist Horwitz: Markets May Tank, Investors Should Stay Put

By    |   Thursday, 20 Sep 2012 01:10 PM

Stock markets might continue their gains on the back of Federal Reserve interventions in the economy, but investors on the sidelines shouldn’t jump into equities now, as prices are due for a correction, said Todd Horwitz, chief strategist at Adam Mesh Trading Group.

The Fed recently announced plans to stimulate the U.S. economy by buying $40 billion in mortgage-backed securities from banks every month on an open-ended basis until the economy improves and more Americans find jobs.

The move, known as quantitative easing (QE), functions by pumping liquidity into the financial system in a way that pushes down interest rates across the economy, weakening the dollar and sending stocks and commodities climbing as side effects.

Watch our exclusive video. Story continues below.


Stocks rose in anticipation of the Fed’s announcement and will continue to post gains, though for how long remains to be seen.

“If we look at the overall market again, we are up 13 to 14 percent since the beginning of June, and what’s gotten better? Earnings are worse — they are less than stellar. Jobs have gotten worse, and housing has stayed status quo,” Horwitz told Newsmax.TV in an exclusive interview.

“So, the market is ignoring the bad news.”

Investors on the sidelines should realize that despite the gains, opportunities are lacking.

But such opportunities will make themselves known once a pullback occurs.

“There will be a correction, [yet] we could run to a 1,500 S&P before,” Horwitz said.

The S&P 500 Index is trading around 1,460.

“That would not shock me, but as far as putting new money in, I think the risk is by putting new money into the long side of the market,” Horwitz added.

Meanwhile, for those already in equities, don’t rush out.

“Certainly it would be irresponsible of me to say that it would be a good spot to get short, because the tape is telling you that the market still wants to go higher right here,” he noted.

Since the 2008 financial crisis in the United States, when Lehman Brothers collapsed, the Fed has rolled out two rounds of QE, with the first round seeing the Fed snap up $1.7 trillion in mortgage securities and the second round seeing the Fed buy $600 billion in Treasury securities held by banks.

The latest round is unprecedented in that it will run on an open-ended basis, meaning liquidity could flow into the economy for a while.

Still, don’t expect a major rally in equities either, since monetary policy tools don’t make fundamental improvements to the economy and carry diminishing returns by nature.

“I think this is just more fluff, more kicking the can down the road,” Horwitz said.

“In the long run, I don’t think this will be helpful to the markets.”

Gold prices tend to rise when the Fed moves to loosen monetary policy, since easing weakens the dollar, gold’s traditional hedge.

Don’t expect gold to soar, however, as the dollar will still see support.

The European debt crisis continues to cloud the global marketplace, and uncertainty across the Atlantic will fuel demand for dollar-denominated positions as a safety play.

“If they continue easing, gold is going to go higher. I would see $1,800 right here on the top end for the time being,” Horwitz said.

Gold is trading at just over $1,760 an ounce, and once the market prices in the Fed policies, expect the precious metal to lose some of its luster.

“I’m not really looking for gold to go much higher, because I think that this will start to play out as we go forward. And I think that we are going to find out that this easing is not a very good philosophy and then we are starting to see some more strengthening of the dollar, which will automatically by nature, weaken the commodity markets.”





© 2017 Newsmax. All rights reserved.

   
1Like our page
2Share
StreetTalk
Stock markets might continue their gains on the back of Federal Reserve interventions in the economy, but investors on the sidelines shouldn’t jump into equities now, as prices are due for a correction, said Todd Horwitz, chief strategist at Adam Mesh Trading Group.
Horowitz,correction,sidelines,stocks
636
2012-10-20
Thursday, 20 Sep 2012 01:10 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved