Search this Site

Search Term Submit Search

Browse Topics

• COSE Education Programs
  • Member Education Series
  • SBC 2008
  • SBC 2009
  • SBC 2010
• COSE Business Networks
  • COSE Arts Network
  • COSE Home Business Network
  • NEOSA- The COSE Technology Network
• Finance
  • Access to Capital
  • Business Financial Planning
  • Financing Solutions
  • Investment Management
  • Receivables Management
  • Tracking Business Finances
  • Wealth Planning
• Human Resources
  • Conflict Resolution
  • Creating a Positive Culture
  • Diversity Awareness and Education
  • Employee Development
  • Leadership Skills in Employees
  • Recruitment and Safe Hiring Practices
  • Termination of Employees
  • Workers' Compensation
• Legal
  • Bankruptcy and Creditor's Rights
  • Building and Maintaining Your Legal Infrastructure
  • Intellectual Property
  • Liabilities Within the WorkForce
• Marketing
  • Branding
  • Customer Retention
  • E-Marketing Tips and Trends
  • Lead Generation
  • Marketing 101
  • Marketing Plans
  • Public Relations
  • Search Engine Marketing
  • Social Media
• Personal and Professional Development
  • Goals: Setting and Achievement
  • Personal Evolution
  • Professional Advancement
• Sales & Networking
  • Customer Service
  • Networking Strategies
  • Prospecting
  • Relationship Selling Strategies
  • SME Cleveland
• Small Business Advocacy
  • COSE Advocacy Information
  • Health Care Reform
• Small Business Tools
  • A Checklist of Tools for Business
  • Business Insurance
  • Buying and Selling a Business
  • Crisis Communications
  • Growth Strategies
  • Investing in a Franchise
  • Owning a Franchise
  • Peer Advisory Groups
  • Strategic Planning and Execution
  • Succession Planning
• Sustainability
  • Energy
  • Greening Your Business
  • Waste Reduction, Recycling and Composting
• Technology
  • Business Software and Applications
  • Business Technology
  • Developing and Implementing a Website
  • Disasters: Prepare & Recover
  • Document Management Software
  • Innovation in Technology
  • SEO
  • Telecommunications
• Wellness in the Workplace
  • Healthy Lifestyles

• Mindspring
• Topics
• Finance
• Investment Management
• Are We in a Stock Market Pullback

Are We in a Stock Market Pullback?

written on June 22, 2011 by Frank Fantozzi

Before television, the Internet, football, cars and movie stars, Americans were obsessed with baseball.  Baseball was the one thing that everyone could talk about with family, neighbors, and coworkers.  It became America's favorite summer pastime 150 years ago.
 
The attraction of a summer day at the ballpark endures, but it is no longer the most common topic of conversation during these early days of summer.  Instead, the six week decline in the U.S. stock market seems to be the topic on everyone's lips.  The boys of summer are taking a backseat to the dogs of the Dow.  The big question about the stock market pullback is:  what inning are we in?

 After six weeks of decline, tumbling almost 7% in both the Dow and S&P 500, we believe we are in the middle inning with a few weeks and percentage points left to go.  The pressure on stocks may continue for a few weeks or a few more innings due to the following: 
 
Soft economic data - Economic data remaining soft in the next few weeks as the data continues to be negatively impacted by the lagged effect of high oil prices, the Japanese earthquake and tsunami, and severe weather and natural disasters in the United States. 
 
Pre-announcement season - The so-called earnings (pre-announcement season) is coming up in the next few weeks when corporate leaders often pre-announce any bad news ahead of their second quarter earnings reports that begin in mid-July.  In the past couple of years, the pre-announcement season has been relatively quiet and not acted as a negative for stocks.  However, due to the slow-down during the second quarter and supply chain problems extending from the disaster in Japan, the next few weeks may feature more bad news than in recent quarters as companies lower their earnings outlook.   
 
End of QE2 - With the Federal Reserve due to cease being the biggest buyer of debt issued by the Treasury to fund the government on June 30th, 2011, lower rates are dependent upon foreigners stepping back in to buy the increasing quantities of treasuries.  The end of QE2 (quantitative easing) may heighten concerns about the U.S. dollar, interest rates, and debt level adding to the environment of uncertainty. 
 
Debt ceiling debate - The battle is likely to heat up in the coming weeks in Washington over raising the debt ceiling and making budget cuts with the threat of a potential U.S. default looming if an agreement is not forthcoming and implemented by August 2nd.  
 
While these negatives are not new, they may continue to pressure stocks until they begin to recede by mid-July.  At that point, we expect that: 

• The debt ceiling debate should be nearing an end,  
• Earning reports will get underway for what is likely to have been another solid quarter for profits, and
• Economic data is likely to rebound from the negative effects of the earthquake and tsunami in Japan and the unusual weather patterns in the US. 

These negatives may coincide with the end to the pullback and the start of a rebound.
 
While we do not expect this pullback to extend into extra innings, there are alternative outcomes that we are on the lookout for and could lengthen and could deepen the decline.  These outcomes include the following: 

• Earnings reports accompanied by significant downward guidance on earnings for the second half of the year. 
• The economic data continues to soften and come in weaker than expected through July and August. 
• A banking crisis emerges from the European debt problems, specifically Greece. 
• More bad weather, natural disasters, or other unforeseen negative events posing additional shock to the economy as a transition away from the support of a fiscal and monetary stimulus takes place. 

The season is far from over, and there will be wins to balance out the losses as volatile but, range-bound, summer ensues.  Despite the tough season, stocks are likely to have a winning year.  We continue to expect the stock market to post a high single-digit rate of return this year, accompanied by high volatility.
 

Important disclosures:
 The opinions voiced in this material offer general information only are not intended to provide specific advice or recommendations for any individuals.  To determine which investment (s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and does not guarantee a future result.  All indices are unmanaged and cannot be invested directly.
 
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
 
Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying other securities from the market.  Quantitative easing increases the money supply by flooding financial institutions with capital in the effort to promote increased lending and liquidity.
 
Stock investing may involve risk including loss of principal
Securities offered through LPL Financial. Member FINRA/SIPC.