Homepage / Investment / Here's what could go wrong with stocks at record highs
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election

Investment

Here's what could go wrong with stocks at record highs

The midsummer market is a Goldilocks market, but it’s about to head into what can be two of the worst months of the year for stocks and there are plenty of risks to the rally.

Robust earnings, a fairly easy Fed, super-low volatility and a global economic recovery are among the many things that look just right for the market and are helping it set new highs day after day.

But Goldilocks could get burned by any number of unforeseen developments, from the geopolitical to policy induced.

First of all, the stock market has not had a correction of any size since the 11 percent sell-off that ended in February 2016. Investors are also overly exuberant and volatility, as in the VIX, has been near record lows — a contrarian’s sign that trouble could be brewing.

“We don’t need to have one but it wouldn’t surprise me if we did have a pullback,” said Jeff Kleintop, chief global investment strategist at Charles Schwab. Some investors have been hoping for a sell-off, and he said even with a 5 to 10 percent or greater correction it would be over quickly.

“There’s still people looking to buy in on the dips, and people have a lot of cash. I would think it would be fairly short-lived,” he said.

Kleintop said when the market runs out of earnings news, other forces could take hold and he has a list of concerns that includes the tensions with North Korea and the administration’s trade talks. That also coincides with August and September, historically two of the worst months for stocks.

“You’ve got oil, geopolitics and trade, three market-sensitive issues on the docket in August,” Kleintop said.

“We’ve got the hurricane season picking up in August. That could influence oil prices and it looks like it could be a more aggressive season this year,” he said. Both a big spike in oil prices, or another big drop would be negative for stocks. “We’ve also got … really the first substantive NAFTA meeting on Aug. 17 through the 20th.”

NAFTA is the North American Free Trade Agreement that is being renegotiated with Mexico and Canada, and if there are signs of protectionism beyond the usual rhetoric, that could be a problem for markets.

Kleintop said tensions with North Korea, which have really not been a factor for the U.S. stock market, could become more worrisome. “We’ve got the potential for a North Korean missile test again in August. That could shake the market a little as tensions continue to heat up.”

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said North Korea has become a greater concern to markets because of its increased missile capabilities, and the fact that it is the Trump administration’s first serious foreign policy challenge.

“It looks like China is growing less patient with North Korea,” said Chandler, noting press reports have said China is boosting its border defense. The Wall Street Journal reported that China was taking the action in part out of concern that a U.S. strike on North Korea that could destabilize the country.

Chandler said another concern the market is not really focused on is the Himalayan border dispute between China and India, where there have been skirmishes.

“Most of these things are low level, but Korea I think could get bad quickly,” said Chandler. He said if there is a U.S. military response, it would be a big deal for markets. “Russia is siding with North Korea, and Russia and China have both said they want a peaceful solution.”

Chandler said there’s also some risk for markets this week from North Korea. Thursday is the 64th anniversary of the cease-fire that ended the Korean War, and he said North Korea has used this date as an opportunity to show off its military might.

Washington could also become a factor for markets as well if Trump administration efforts to raise the U.S. debt ceiling run into trouble in Congress. Some strategists say there could be some market turbulence around congressional efforts to reach a budget resolution this fall with talks on that and the debt ceiling picking up in September.

Strategas Research’s head policy analyst, Daniel Clifton, says he calls the budget debate the “spinach” portion of the Republican agenda, the part that Congress has to work through before it can get to tax reform. The budget for fiscal 2018 contains reconciliation instructions for tax reform which would allow the Senate to pass tax policy with just 51 votes.

“Failure to raise the debt ceiling could lead to financial market complications, as we learned in 2011. We expect both the budget and debt ceiling to be completed, but rarely does the process invoke confidence in policy-making,” wrote Clifton. If stocks sell off, however, he sees it as an opportunity to buy the dip.

“We’ve gone a long time without a correction, but that’s something you could have said three months ago. Just because you’re at the roulette table, you could be overdue for black but you keep coming up red. Concerns about valuations have been around for a year now,” said Paul Hickey, co-founder of Bespoke.

Hickey said one thing that could trigger a correction is if the economic data begin to make it seem that the Fed is going in the wrong direction, or is even behind the curve and has to play catch up with interest rate hikes. The market is currently not convinced the central bank will raise rates again this year, as it has forecast.

But the Fed is expected to begin the process of unwinding its balance sheet in August, by buying fewer Treasury and mortgage securities. Some strategists say that process could spook the market if it causes interest rates to rise.

Hickey points out that the S&P 500 has actually fared worse in the seven summers since the bull market began, declining an average 1.7 percent in August.

Source: Bespoke

In the past 20 years, August has been the worst month of the year for the Dow and the S&P 500, both lower half the time and averaging declines of about 1.5 percent, according to analytics firm Kensho. September has been the third worst month for stocks, with the Dow down an average 1 percent and negative 55 percent of the time. The S&P has been down an average 0.75 percent and was lower half the time in September.

But for now, Hickey doesn’t see some of the red flags that would signal a correction. “The high-yield market has been holding up well,” he said. Earnings have also been strong, with second-quarter profit gains coming in at about 10 percent, according to Thomson Reuters.

“It’s not a bright green light, but it’s not flashing red either,” he said. Hickey said other summers have had their unexpected surprises, like 2015 when China’s economy was slowing or 2014 when there were concerns about ebola.

Disclosure: CNBC parent, NBC Universal, is a minority holder in Kensho

Source: Investment Cnbc
Here's what could go wrong with stocks at record highs

Comments are closed.