This week is the 25th anniversary of the Oct. 19, 1987 Crash, when the Dow plunged 22.6%. That’s the biggest 1-day drop ever when measured on a %-basis.
Mark Hulbert wrote that: “A single-session drop of at least 20%...is
predicted — over long periods — to occur once every 104 years, on average...”
Stated another way; the
odds of a stock market crash are about one in a hundred for any given year. Full commentary at...
http://www.marketwatch.com/story/another-stock-crash-like-1987s-is-inevitable-2012-10-17
Mark Hulbert is not
predicting a crash now; but Michael Belkin is!
WSJ live - Markets (VIDEO)
“Michael Belkin Predicts 40% Stock Market DropHedge Fund Consultant Michael Belkin spoke at The Big Picture conference, predicting a 40% stock market drop in the coming 12-15 months.”
“Michael Belkin says we
are in recession now based on ECRI data and his own work. The recession has been caused by Europe and
Asia pressuring US corporate profits. He
said the average recession has lasted 15-months and has resulted in a 30% drop
in stock prices when looking at the Dow.
He says there is a much greater risk for the NASDAQ because those
companies rely heavily on overseas revenue.
He expects corporate
earnings to be a “big disappointment” in the current reporting period. To watch the video...
http://live.wsj.com/video/michael-belkin-predicts-40-stock-market-drop/A1C9660A-0321-4E82-BA0E-EFD4CD092D40.html?link=MW_hp_tboverticalx8#!A1C9660A-0321-4E82-BA0E-EFD4CD092D40
Let’s look at Corporate
profits so far...
FROM FACTSET.COM
“Of the 32 companies that have reported earnings to date for Q3 2012, 63% have reported earnings above the mean estimate and 56% have reported sales above the mean estimate...
…Earnings Growth: The blended earnings growth rate for Q3 2012 is -2.6%. If -2.6% is the final growth rate for the quarter, it will mark the end of the eleven-quarter streak of earnings growth for the index…
…Earnings Guidance: For Q3 2012, 80 companies have issued negative EPS guidance and 23 companies have issued positive EPS guidance. If 78% (80 out of 103) is the final percentage of companies issuing negative EPS guidance for the quarter, it will be the highest percentage recorded by FactSet.”
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_10.12.12
These numbers don’t look
very good, but the falling earnings numbers have been widely expected. Factset noted in their report that the
12-month forward P/E is 12.9 vs. a 10-year average forward P/E of 14.3. That means that earnings disappointments are,
at least partly, already baked in the cake.
Nothing here means that ECRI, John Hussman, or Michael Belkin are wrong.
From my perspective, I
prefer to focus on the market’s reaction to the economy rather than trying to
determine if it’s in recession or not.
MARKET RECAP
Wednesday the S&P 500 was UP 0.41% to 1461 (rounded) and VIX was down 1% to 15.07.
The most recent high was
1466 on 14 September. That will be an important
test point for this bull. If the market
can break decisively higher than 1466 then it may make it back to the 1550
prior highs.
NTSM
The
NTSM analysis remained HOLD Wednesday.
MY INVESTED POSITION
Based on the BUY signal, 6
July, I moved back into the market on 9 July (after the weekend) at S&P 500
1352.
I currently have a 50%
stock allocation overall. For my age,
that is what many advisors recommend as a fully invested position, however, I
am normally much more aggressive. I have
less invested in stocks now because there’s a lot of risk.
