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Ken Fisher: Expectations for Stocks on High Side

Wednesday, 18 May 2011 09:15 AM

Is falling oil a good sign or a harbinger of disaster? If you are a typical American pumping unleaded, a sharp drop in gasoline prices would be welcome right about now. If you are a stock market bull, not so much.

Even “momentum” players like Ken Fisher, founder of the $38 billion fund Fisher Investments, see a slowdown in equities around the bend.

"I think expectations for the stock market are a bit on the high side," he told Reuters. That sounds like a tempered statement, but consider that Fisher’s normal investment strategy is to buy as shares rise in order to ride market enthusiasm even higher.

bernanke200.jpg
Fed Chair Ben Bernanke
(Getty Images photo)
If Fisher sees the market as pricey, then we might well be near the end of the ride for equities, a nearly unbroken rise that started in August 2009, when the Federal Reserve opened the spigots on cheap money by wading into the Treasury market with its $600 billion “quantitative easing” program. That effort ends in June.

Meanwhile, more than jobs or credit, oil has become a closely watched indicator for the economy near-term, as so-called “demand destruction” takes hold of the crude market. Problems in Europe and a slower U.S. recovery — the economy grew by 1.8 percent in the first quarter — could mean oil goes lower still.

Flooding around refineries in Louisiana might keep gas prices higher, but fuel would eventually follow oil downward. Lower commodities prices would be huge boost to Fed Chairman Ben Bernanke, who called higher prices for food and energy “transitory” earlier this month.

Stocks are in for a rough patch in part because they simply cannot sustain the expectations built into them by investors, argues fund manager John Hussman in a recent note to clients.

“The stock market continues to be strenuously overvalued here, with a variety of historically reliable methods indicating probable total returns for the S&P 500 of only about 3.5 percent over the coming decade,” Hussman writes.

“This does not necessarily imply much about near-term market returns, though the continuing syndrome of overvalued, overbought, overbullish, rising-yield conditions does contribute to near-term risk.”

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Is falling oil a good sign or a harbinger of disaster? If you are a typical American pumping unleaded, a sharp drop in gasoline prices would be welcome right about now. If you are a stock market bull, not so much. Even momentum players like Ken Fisher, founder of the...
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2011-15-18
Wednesday, 18 May 2011 09:15 AM
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