Investors (and advisors) should be focused on the true facts of the U.S. economy and corporations and tune out the hype and happy talk from the media and Fed heads.† Instead investors should focus on the real data.† I see five warning signs that the arrival of Spring has brought deterioration in the economic data which tells me U.S. stocks are going to first start to trip and then tumble.
1. A lot of overextended buyers in U.S. stock market.†
There is a shortage of buyers in Apple stock, which is down 40% from its high.† In fact, there is a very large position of short sellers.† Itís hard to imagine because Apple stock is the number one capitalized company in America.† It has the best marketing and brand a company can have, but the short positions in this stock are telling another story. The tale is that there will be a shortage of upside because the economy is breaking down and canít support what Apple needs.† The broader U.S. stock market is showing similar strain.† According to a report released from Kimble Charting Solutions, for the month of March of 2013Ö available cash in investors accounts was actually approaching its least levels that they have seen EVER!† This suggests there is a scarcity of buyers, but itís an even more ominous sign because low cash levels preceded both the 2000 and 2008 market collapses, and the 2011 mid-year correction.† This is one reason you donít want to be invested in the U.S. stock market now. †
2. Market breadth is weak and market indices have been hitting new highs,
But sectors including energy, materials, transportation, retail and technology remain behind.† These signals are not good.† Even the Russell 2000 failed to rally, but broke down below the November trend line and the one-month trading range.† This is not healthy for the stock market here and tends to signal downward momentum.
3. Weak corporate earnings. †
Traditionally, a surging stock market is propelled by strong corporate earnings growth, but that is not the case today. Actual S&P500 operating earnings have declined 9% since the second quarter of 2012 peak. In the past 3 months, 117 companies have warned about Q1 earnings guidance shortfalls versus only 24 companies issuing positive guidance.† Thatís a negative 3.0% update for every one that is positive.† Thatís the highest negative ratio in the last 7 years.† Furthermore, earnings forecasts turned even more bleak as more than 100 S&P 500 companies have offered negative revisions of their quarterly earnings forecasts, leading economists to expect first-quarter earnings growth to expand by just over 1.5% compared to 6.2% earnings growth during the fourth quarter of 2012. This is not good news for the U.S. stock market nor its investors.† Fantasy will go away and reality will hit.† The U.S. market engine is running on fumes right now and it will need gas really soon as the needle on the gas gauge is below empty.
4. U.S. consumer spending numbers are weak.†
Supposedly strong consumer spending numbers reported by the U.S. government totally contradict what the private sector surveys and companies are reporting.† U.S. government reported consumer spending increased by 70 basis points last month according to the Commerce Department.† They have been exaggerating because Wal-Mart and McDonalds are reporting negative sales for the same time period.† These stocks are bellwethers for the US economy.† Consumer spending could not have increased.† Even more proof is the March retail sales showed a 0.4% decrease, which was the most in nine months as employment slowed, further proof that U.S. households ended the first quarter of 2013 on softer footing. †This is another negative indicator for the U.S. markets.
5. Jobs are non-existent