Will The Bearish Forecasts Come To Fruition?

By: Kent Engelke | Capitol Securities

If the averages stage a considerable decline, it would be the most predicted drop in history. It appears everyone is now forecasting a drop between 10% and 25%. The primary catalyst for the decline… rising interest rates.

Some firms are more detailed about their prognostications, rationale ranging from an “extremely crowded trade” in the mega-sized technology growth issues, to the breakdown of the cross-correlated trade to the radical change in the geopolitical and macroeconomic environment.

I too think the popular averages could decline 10% to 15% for all the reasons listed above, amplified by the massive passivity of most investors. It is my first-hand experience that most are more risk adverse than suggested. Moreover, I ardently believe that if passivity was the pathway to outperformance, all would become gazillionaires over time.

In my view, markets can only operate so long in a period of little research or socioeconomic/geopolitical analysis. There must be some forward looking thought and thesis.

Yesterday, the NASDAQ fell about 1%, a decline lead by mega-sized technology issues as money rotated into the value (aka oil and financial shares). The Dow ended nominally lower.

Today, FRB Chair speaks in Cleveland. Will her comments be of any significance?

Last night the foreign markets were mixed. London was down 0.06%, Paris was down 0.03% and Frankfurt was up 0.08%. China was up 0.06%, Japan was down 0.33% and Hang Sang was up 0.05%.

The Dow should open nominally lower as clarity is lacking on interest rates, taxes and North Korea. The 10-year is unchanged at 2.22%.


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