Stock market trend: Decisively Broken.
Plan A remains in effect: Cash is king in a market still trying to determine whether we are standing on a bottom or trap door. It’s all about the economic indicators now and whether there will be any signs that the investment-led recovery in the U.S. is going to falter.
As usual, we may be led by the GDP forecasting equation in my Always a Winner book, where economic growth is driven by only four components: consumption, business investment, government spending and exports.
Moving through this equation, some regional indicators have begun to point to a slowdown in the investment component. Consumer confidence (and therefore spending) remain problematic on the basis of high unemployment and stagnant wage growth and downbeat news from Europe to the Gulf of Mexico. Federal government spending is retracting now on deficit fears and the end of the stimulus while state governments, particularly California, face a new round of cuts. Finally, while the stronger dollar will help our foreign oil deficit, it will likely be a net downer on the trade deficit as exports suffer.
Meanwhile, Treasury Secretary Tim Geithner came back from Beijing empty-handed on trade reform so China will continue to steal our jobs and erode our manufacturing base through its protectionist and mercantilist practices.
The only real question is whether the market goes sideways or down for a while now as, absent new economic data confirming robust growth, it’s increasingly hard to imagine a strong upward move.
So use this time to build your watch list – and just be ready with your cash the next time opportunity calls.