Sunday, November 24

5 Reasons for a correction to expect

5 Reasons for a correction to expect
| By Jeff Reeves, MarketWatch

While optimism goes a long way on the capital markets, stock prices can defy only gravity, so long before reality exceeds again unrealistic expectations.

The market continues to truck higher and the S - and P-500 now sits on about 26 percent in year-to-date gains.

But they expect not to last.

For many reasons, the market seems ripe for a correction. No crash, mind you as the Permabears and the bunker crowd would like to see, you can catch only a reality with Wall Street up 10 to 15 per cent jump in the broader indexes.

You see, the face ripping rally for many stocks almost completely in the year 2013 based on mood. And while optimism goes a long way on the capital markets, stock prices can only defy gravity so long before reality surpasses again unrealistic expectations.

Here are five reasons why I have a two-digit correction in the S- & P-500 sometime in the next six months are:

Mutual fund share-based have absorbed more money in 2013 than any year since 2004 - $76 billion, to be exactly vs. total outflows of $451 billion from 2006 to 2012.

If you want to be a fatalist, is the fact that the "dumb money" on the market is returned to the ultimate sign of a top. Alexandra Scaggs of the Wall Street Journal tracked a group of inspiring MOM investors who offer that offers such as "I still think there's huge head on the Exchange... I don't want to miss."

Clearly, the return of retail investors could be more buying pressure on the market and push indices 2014 offer more record highs. But when people start to buy stocks simply because the shares rise, it sounds to me the definition of a bubble.

The Dow Jones was the 37th record high set on Thursday - and as usual, financial media alert investors that happy.

But it is worth noting that eclipses 34 record highs in 2007, correctly set before fell below out.

Records alone are not characters of a bit, of course. Finally the market place 69 new highs - a record sum from record highs, if you will - and further drive in 1995, until the dot-com crash.

But the height of 2013 feel differently in this respect that they are given great importance as an "all-clear" type. Keep in mind that the unemployment rate in the mid 5-percentage range compared to a peak in 1995 was more than 8.2 percent in 1992. Also concerns you, that it not a single year in the 1990s with a GDP growth rate of less than 4 percent. A bull market in stocks was big, but also part of a broader story of the economic might of the Decade.

That has not happened in 2007, such as cracks in the growth story began to emerge. And that is certainly not the case now as persistently high unemployment and anemic growth are the rule.

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