Hi Tom, general commentary.. US equities, as expressed by the averages, are in a precarious situation. My money, risk and return models are showing as likely for the SP500 to test 910 as it is to run over 1000 by probability. Peering behind the chart, I'm seeing the following...
Positive
1. continued cash inflows both foreign and especially tax incentived domestic
2. low and potentially lower interest rates, government borrowing needs and debt service
3. high employment without inflation
Negative
1. substantially lower Asian activity and bank distress, which will sop up inflationary expectations through lower prices BUT will also tap out the consumer
2. high employment turning down on my scope, expecting to see retail layoffs after holidays with consumer debt increasing
3. corporate profitability will be lower than expected through June in my opinion, Europe is growing but can't substitute lost revenues in Asia, Japan and Korea.
This is an odd situation where money has flowed to this country partly for safety and partly for profits expectations. The large caps will soon find themselves with similar projections as the techs are experiencing though not nearly as severe... As they are benefiting now with cash inflows their risk will increase relative to return. Throught the IMF we are bailing out our own export sales into those areas, if we slow down our purchases, then there's a double negative effect... just when our markets are the most pumped up and expectant of high returns.
What this boils down to is this.. if the employment numbers weaken, the consumer (who's driving sales/profits expectations) will cut back, as they normally do and should. Inventories are up, the indexes are resting on a hot US job and spending market to sustain and bail the situtation out to a positive resolution... looking at a triple or rounding top.
Jim |
