“The S&P 500 is up nearly 10% since its 2014 low in the first week of February. The index, which tracks the largest stocks, is now at a record high, up 4.1% for the year.
Behind the rebound is a view that stocks will continue to benefit from robust earnings, low interest rates and scant inflation. If those conditions persist, the market’s climb could very well continue.
But it’s important to examine the issues that have the worrywarts up at night and the justification bears have for their downbeat outlooks.
Below are some critical investor concerns, with a 1 to 10 “worry level” ranking—1 being the least worried and 10 the most.
Earnings and the economy: worry level 8.
The U.S. economy just can’t seem to take off, and recent earnings have disappointed. On Thursday, government data showed the nation’s gross domestic product declined at an annual pace of 1% in the first quarter, worse than economists expected and the first time economic output contracted since the first quarter of 2011.
Meanwhile, profits for S&P 500 companies in the quarter rose about 2% from the same period a year earlier, below the previous quarter’s 8.5% rise.
Rising prices for Treasurys are a sign the bond market is more skeptical about growth than the equity market.
The bond market is giving “a thumbs-down vote on economic growth,” says Peter Boockvar, chief market analyst at Lindsey Group.
Adds Daniel Alpert of Westwood Capital: “The bond and equity markets are expressing dramatically different views of the economy. When this happens, bonds typically have it right about 80% of the time.”
Jeff Mangiat
What the Fed might do: worry level 6.
A key reason stocks have done well since 2009: The Federal Reserve has kept interest rates low while buying huge volumes of bonds, trying to stimulate the economy. That’s forced investors to flee fixed-income investments and shift to equities.
But the Fed is paring its bond purchases and eventually will raise interest rates, raising questions about the market’s underpinnings…..”
If you enjoy the content at iBankCoin, please follow us on Twitter
