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The Market Roller Coaster Isn't Over Yet

The Market Roller Coaster Isn't Over Yet

By    |   Tuesday, 29 March 2016 08:01 AM

The market is back.  It looks like those terrible days in the beginning of the year are over.  Stocks have resumed their bull market posture after an overdue correction, right?  Don’t count on it.

It’s certainly true that the market has regained its footing in the past six weeks.  Since the recent bottom on February 11th the S&P 500 has soared over 12%.  Things look a whole lot better now than they did at the market bottom when the S&P has fallen over 15% from the 52-week high and over 11% in the first six weeks of the year.

The market sprung back.  That’s because money still has no place else to go to earn a decent return (besides stocks).  Money is only scared into near zero percent returns temporarily.  As soon as the fear wanes, money goes right back into stocks and the market rises back just as fast as it fell.

But now what?

After staging an impressive surge from the lows, where do we go from here? At this point the S&P 500 is relatively expensive at more than 20 times earnings.  Upcoming earnings don‘t look that hot either as the global economy continues to wallow in misery.  And the global economy could continue to get worse.  As well, the Fed is still determined to continue raising interest rates this year, putting upward pressure on the dollar and further dampening prospects for overseas profits. 

At the same time, markets hate uncertainty.  And we have a ton of it.  The world appears to be spiraling out of control as ISIS continues to cause problems, Putin gets increasingly desperate and North Korea gets closer to figuring out how to launch a nuclear missile. And those are just some of the issues that could deteriorate and spook the market.  Then there is the tremendous uncertainty surrounding the Presidential election.

There really doesn’t appear at this point to be a sufficiently positive catalyst to offset all those negatives.  I don’t think this is a market that can take much bad news.  There is a lot more downside than upside potential for stocks in the near term.  In fact, I believe it is more likely that we are in the throes of a bear market that started last May then it is that the market climbs back to new all time highs in the coming quarters.

That said, it isn’t all that bad.  Even if the market does plunge to new recent lows in the months ahead, it will likely bounce back quickly for the same reasons it did before.  It’s unlikely that the market will crash.  It is more likely that it goes practically nowhere in the next year but does so more violently.

The situation creates opportunity for those bold enough to buy good stocks at bargain prices when the market sells off.   Expect more downside ahead, but consider this to be a flat market that offers great opportunity on the dips.

Tom Hutchinson is a Wall Street veteran with extensive investing and finance experience. To read more from him, CLICK HERE NOW.

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The market is back. It looks like those terrible days in the beginning of the year are over. Stocks have resumed their bull market posture after an overdue correction, right? Don't count on it.
investors, stock market, economy, volatile
Tuesday, 29 March 2016 08:01 AM
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