Tags: Howard Gold | Fed | dollar | stocks

MarketWatch's Gold: Fed Policy, Dollar Represent 'Headwinds' for Stocks

By    |   Wednesday, 08 April 2015 08:00 AM


The S&P 500 index stands within 2 percent of its record high, but MarketWatch columnist Howard Gold sees several "headwinds" confronting the stock market.
  • "Headwind No. 1: Federal Reserve policy. Top Fed officials have made it very clear that the central bank is gradually moving to more 'normal' interest rates from the near-zero federal funds rate that has prevailed for six years," Gold writes. Many economists expect the Fed to begin raising rates in September, and low rates have been a major factor driving the six-year bull market for stocks.
  • "Headwind No. 2: The U.S. dollar." The dollar index, which measures the greenback against six major currencies, recently rose to a 12-year high. That hurts U.S. companies by making their exports more expensive in foreign currency terms and lowering the value of their foreign revenue when it's converted into dollars. The strong dollar already has taken a big bite out of earnings for many corporations, including IBM and Johnson & Johnson.
Jim Paulsen, chief investment strategist for Wells Capital Management, also sees risk for stocks, at least in the near term.

"Recently, we have become concerned about three major challenges facing the U.S. stock market—investor sentiment has become a bit too calm and confident, valuations are a bit
too extended, and interest rates finally seem likely to soon be reset higher," he writes in a commentary provided to Newsmax Finance.

"We continue to expect the stock market to eventually navigate these challenges and most likely the bull market will persist for several more years. However, until these issues are addressed, the stock market seems likely to struggle, remain more volatile, and perhaps suffer a correction."

A correction is generally defined as a loss of at least 10 percent.

As for investor sentiment, a gauge of it called R-squared provides room for concern, Paulsen says. When it comes to valuations, the S&P 500's trailing price-earnings ratio stood at 20.25 Friday, up from 17.69 a year ago, according to Birinyi Associates.

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The S&P 500 index stands within 2 percent of its record high, but MarketWatch columnist Howard Gold sees several "headwinds" confronting the stock market.
Howard Gold, Fed, dollar, stocks
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2015-00-08
Wednesday, 08 April 2015 08:00 AM
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