Will Stock Market Reverse Course in the Second Half of 2011?

Wall Street RallyThe market as measured by the S&P 500 was up by only 4% in the first half of 2011, and it fell about 1% in the second quarter. A rally that has lasted two and a half years has stalled. The S&P rose from 683 in March 2009 to just below 1,400 two months ago.

It gets worse: A sell-off may be about to begin that would take the index lower for the full year. Here are half a dozen reasons why one of the most impressive stock market runs may have ended:

1. Markets can't rise forever. This may be obvious to most people. A market that more than doubles in two years is a market which requires significant support to go higher. Recent economic news shows that support to be lacking.

2. Corporate earnings have been pressured by an economic slowdown and margin drops. Many companies in the retail, transportation and manufacturing sectors counted on low commodities prices back in 2009 and 2010 to help profits. That help is gone. Oil has rallied from below $50 in mid-2009 to almost $100 recently. The price is down from $110, but it is still historically high. Prices on cotton and many agricultural commodities have also risen in the same period. The result: The cost of making and moving goods is higher, and margins on items like clothing have dropped.

3. Consumer sentiment has faltered.
Recent data from from the Conference Board said "Consumer Confidence Index, which had declined in May, decreased again in June. The Index now stands at 58.5 (1985=100), down from 61.7 in May." Many retailers have posted slow same-store sales. Activity at the world's largest retailer, Walmart (WMT), has been down on a same store basis for its U.S. operations.

4. The improvement in unemployment has stopped. There were signs of a recovery in the job market in the first quarter and the unemployment rate dropped below 10%. May figures showed improvement in unemployment slowing as the economy added only 58,000 private-sector jobs. The carefully watched ADP data numbers confirmed the problem. Weekly initial jobless claims are still above 400,000 most weeks, a sign the June unemployment figures are likely to be poor. One of the worst drags on the economy -- long-term unemployment, which is measured by those out of work for more than 26 weeks -- has risen to over 6 million people. Most of these are close to the end of receiving unemployment payments, which means in a large sense, they will cease being consumers at all.

5. Housing prices are still falling. Americans counted on home equity to fuel their lifestyles in the 2004 to 2006 period. That ended as home prices fell sharply into 2010. S&P Case-Shiller data shows that home prices in the 10 largest and 20 largest cities continue to drop. Economist Robert Shiller expects the slide to continue into 2012. Over a quarter of U.S. mortgages are underwater, which means most of their owners cannot afford to sell them even if they need to as a way to cut living costs.

6. GDP rose less then 2% in the second quarter.
It's the most comprehensive single measurement of the economy's health, and more and more economists have revised estimates for second-half growth down. The problem may be long-lived. The IMF just issued a report which said U.S. GDP growth will probably be below 3% through 2016.

Beyond those six negatives, there are not many reasons left to support an ongoing market rally. Instead, the signs say a sell-off is probable.



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99 Comments

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ingr72

Love the Doom and Gloom ... Plus Trim Tabs said investors took monies out of the market ..
It all means we go higher from here ...
The Contrarian View is one worth following ...

July 06 2011 at 7:12 AM Report abuse rate up rate down Reply
ddively123

Can we try to spread anymore "doom & gloom" try POSITIVE thinking!! Oh yea, that wouldn't get the sensationalism from the journalist-would it??
It ALL takes time to heal!!

July 05 2011 at 4:52 PM Report abuse rate up rate down Reply
someoneole

mrspelosi

Oh Somey, stupidity extraodinaire best describes you dear. Oh and btw Frank and Dodd are what is called dishonest and deceitful operators.
__________________________________________________________________________________________

Pelosi impersonator, “dishonest and deceitful operators” that sounds more like the GOP’s repertoire, and it’s because of your feeble mind that you can’t understand that.

July 05 2011 at 4:33 PM Report abuse rate up rate down Reply
1 reply to someoneole's comment
savemycountry911

Mrs.Pelosi is very funny and very truthful. You libs hate that.

July 05 2011 at 8:49 PM Report abuse -2 rate up rate down Reply
rdavis5000

Greed in 3 words: Is Not Good!

July 05 2011 at 3:52 PM Report abuse -1 rate up rate down Reply
Jetncat

it's a no brainer to stop the borrowing. Fix the dollar and you will fix the economy. But the dollar is devalued every single time the Feds print or borrow money.

July 05 2011 at 3:52 PM Report abuse rate up rate down Reply
998

Balogna! Are people going to run to the banks for that giant 1.5% CD rate? Just another doomsday prophecy from people who don't have a clue. The Market is the only place to invest in these economic times. Ignore the end of the world BS.

July 05 2011 at 12:54 PM Report abuse +2 rate up rate down Reply
1 reply to 998's comment
savemycountry911

End of the world? No. End of the USA as a world power? Maybe.

July 05 2011 at 3:24 PM Report abuse rate up rate down Reply
3 replies to savemycountry911's comment
nekkorb

I'm on the positive side and will be a buyer of the right equities at the right price. Negativity always leads to loss of capital. Don't be a listener be a believer in what you see.

July 05 2011 at 12:46 PM Report abuse +1 rate up rate down Reply
LEE Resolution

Schools in Europe, the near east (India), the far east, teach math, physics, the tough courses that winnow out those that can't compete. Here in the United States we teach self esteem. So much for the now defunct education system .

July 05 2011 at 12:35 PM Report abuse rate up rate down Reply
1 reply to LEE Resolution's comment
savemycountry911

Yes, it seems to be more important for Johnny to like himself than for him to learn to read.

July 05 2011 at 3:21 PM Report abuse +1 rate up rate down Reply
simpsongrsm

OMG - For once, an article based on reality and truth! I am surprised it passed censorship. No spin - just the facts!
Easy credit, Obama & Bernanke were depicted "throwing money from a hot air balloon" - this cartoon is not far from reality. Under Obama, over 4 Trillion dollars has been added to the deficit. In addition, Obama is surrounded by like minded Socialist fools who continue to urge Obama to to continue pouring more money into the economy and raising taxes! The big banks, as usual, came out smelling like roses - taking advantage of the easy credit - and Democrat's were eager to reward their voting block's to ensure they keep their power. Retired folks, such as I, get close to nothing on our savings. We used to use that interest to supplement our social security - now we must accept a lower standard of living. Fortunately, most older folks, including myself can adjust to the new normal as we grew up in a different time, with different values, with much better education than today's political correct, self-esteem types. Now they are forcing a "Green educational agenda" on high school kids. How about teaching them the basics first, reading, writing and arithmetic! NEA promotes Obama - no surprise there! By electing Obama, we have lower everything dear to our country - he is a total disgrace. The MSM helped put this imposter in office, they should be ashamed!

July 05 2011 at 12:25 PM Report abuse +3 rate up rate down Reply
1 reply to simpsongrsm's comment
LEE Resolution

Obama's a socialist, No more, no less.....

July 05 2011 at 12:29 PM Report abuse +3 rate up rate down Reply
2 replies to LEE Resolution's comment
998

If you don't wan't to close schools, police & fire departments, raise a private army, then you are a socialist to. Like Medicare and SS? Once again that would make you a socialist .... which we all are. Get your definitions clear.

July 05 2011 at 12:58 PM Report abuse -5 rate up rate down
savemycountry911

Republicans are for responsibility. Dems are for gimme, gimme, gimme. There is a difference in pooling you money and just sitting with your hand out.

July 05 2011 at 3:23 PM Report abuse rate up rate down
LEE Resolution

Mr Monkey, the disaster began with a political plan that had no basis in fact. There was no housing shortage back in the early part of the decade, when Dodd and Frank got the ball rolling. Banks were threatened with disqualification from government programs and branch banking opportunities, if they didn't go along. It was a political act (Affordable Housing Act), that interfered with and upset the economic stability of the housing market, with huge collateral damage to the construction industry, and other ancillary businesses. There was no housing shortage, save Los Angeles and NY city. The results of these 'unintended consequences' are what we see today.

July 05 2011 at 12:21 PM Report abuse +1 rate up rate down Reply
1 reply to LEE Resolution's comment
jbumonkey

i don't disagree, but without a participating "audience" it couldnt have turned into what it did. so i pass blame on all involved not just the govt....although you are 100% correct without them setting this up to happen it could not have. thank you Sir for your follow up.

July 05 2011 at 1:54 PM Report abuse rate up rate down Reply