What about the US stock market following the decision by the Federal Reserve to taper and after the best performance since 1997?
The only certainty is that everyone has an opinion but none of us know for sure. I am on record for repeating that I do not expect a real bear market on Wall Street next year because monetary policy, according to the Fed, will remain highly accommodative. Statistically, a real bear market is certainly a decline of more than 20% in my opinion. However, I do expect at least one correction of at least 10% for the S&P 500 in 2014. Why? Because the bull market will be getting ‘long in the tooth’; we have not seen a 10% correction for 562 days, and this year’s gain is already 27.5%.
Wall Street is developing some bubbly characteristics. For instance, look at the important Nasdaq Composite Index. It shows a rivetingly consistent uptrend this year – note the staircase step sequence – which is gradually steepening. Note that the steps are forming more quickly – four to five weeks for the last three – and CCMP is certainly overextended relative to its 200-day MA. When this leading Index loses its uptrend consistency, supply will have caught up with demand and a reaction of at least 10% will not be far off.
Look at Amazon, an amazing company for sure but it makes very little money. It is clearly accelerating at a rate that is not sustainable beyond the short to at most medium term. Meanwhile AMZN has an estimated p/e of 499, according to Bloomberg, and pays no dividend. Look at Nike, an incredibly well managed and successful company. However, it is very over extended and saw a weekly key reversal last week. Nike sells at an estimated p/e of 25.8 and yields 1.24%.
Here are a few more: 3D Systems – AAON – Arcadia Pharmaceuticals, already correcting with reaction of one-third – Aceto Corp – Activis – Acxiom – Adept Technology – Affiliated Managers – Alliance Data Systems – Alliant Techsystems – Ameriana Bancorp. I think you get the point and I am only halfway through the first letter of the alphabet.Back to top