Why I’m ‘Still’ Bearish on Stocks
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Yes, I’ll admit it: I’m bearish on the stock market. I’m still concerned about sending more funds out into the market for one fundamental reason: Rampant energy inflation.
Every business is affected by oil. As long as crude oil remains above US$80-$85 per barrel, I’m staying defensive in stocks. The market is slowly beginning to discount another difficult period ahead for corporate earnings.
With oil prices soaring nearly 40% in just three months, companies are going to start revising their expectations for the next 3-6 months just because input costs are squeezing margins. There is just no way earnings are going to boom in the midst of surging energy costs.
If companies are being squeezed by high oil, what about the consumer? Will the American consumer come to the rescue and support a flagging economy?
The government’s US$100 billion fiscal stimulus package is now hitting American households this month. But I’ve got to wonder what an average US$1,000 check will do to boost spending? With gas prices quickly approaching US$4 per gallon and food costs sharply higher over the last 12 months, any boost in discretionary spending will largely be directed towards energy and food, not a new car or a vacation.
The sub-prime crisis is now largely history. That’s the good news. The bad news is that a new wave of write-downs lies ahead in the consumer installment debt sector. We’re also approaching a storm for earnings expectations amid high oil prices, a protracted bear market in housing and a contraction in bank credit.
ERIC ROSEMAN, Investment Director
Source: Why I’m ‘Still’ Bearish on Stocks
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Tags: American Households, bear market, Contraction, Crude Oil, energy, energy costs, Fiscal Stimulus, food costs, gas prices, oil, Oil Prices, Stock Market, Stocks, Sub Prime CrisisAbout the Author
Eric serves as an editor and Investment Director for The Sovereign Society's Commodity Trend Alert. Eric's talents include blending a dozen or more alternative investment funds to produce consistent returns to traditional asset classes and making commodity based recommendations with huge upside and limited downside.
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