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Once again, the Dow couldn’t finish above its all-time high – perhaps an indication that the recent rally is showing signs of sputtering out. It’s never a good sign when there are a growing number of stocks making new lows. Also discouraging is that the number of stock downgrades by analysts is exceeding the number of upgrades, the first time that’s happened this year. Dirk Van Dijk, research director for Zacks, tells the NYT that it’s “the canary in the coal mine.”
“I don’t want to overplay the decline in the revisions ratio, but it is a trend that bears very close scrutiny going forward,” he said. “If we see this trend continue, it’s time to be afraid – and very afraid.”
That’s being a little melodramatic, but there is a legitimate concern that the woes of the housing market leaking into the overall economy. The real questions are how much leaking will there be, and how long will it take for the leaks to get plugged up? Will consumers get so freaked out about the housing market that they’ll take a pass on weekend trips to SF, skinny pants at the Gap and iPod upgrades? I doubt it – and the consumer spending numbers would seem to bear that out – but whatever the answers turn out to be will help determine whether it's time to sell your stocks or hang tough.
Robert Arnott, chairman of Research Affiliates in Pasadena, suggests that we may be riding a short-term cyclical bull market within a much longer secular bear market – one that could lasts 15 years. Ouch. The last time that happened was in 1974, when there were high oil prices, inflation worries, an unpopular war and an unpopular Republican president in his second term. Sound familiar?
If you're after a second opinion, listen to Craig Callahan, founder and president of Icon Advisers. He tells CNBC that the start of the fourth quarter will signal the start of a new bull market that will last 2 to 3 years.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.