This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: The Case for a Summer Snooze Fest

This blog post originally appeared on RealMoney Silver on July 9 at 8:05 a.m. EDT.

Since I have been out for a few days of meaningful and persistent downside pressure, let's frame the market expectations that have led up to my current outlook for stocks over the balance of the summer and into the fall.

Like Shakespeare's Polonius, I adopted a neutral view of U.S. equities in late May in a column entitled " Neither a Bull nor a Bear Be."

As stocks continued to rise, I argued in early June on CNBC's "The Kudlow Report" that, while I remained confident that a generational low would not likely be breached for years (if not forever), equity valuations had nonetheless more than discounted the second derivative improvement in the economy, and stocks were running ahead of the real economy.

In addition, I further opined a month ago:

  • More tangible signs of economic traction are necessary before the markets move higher.
  • The trajectory of economic growth will be shallow and will likely disappoint the equity markets during the second half of 2009.
  • Massive cost cutting has resulted in better-than-expected first-quarter 2009 profits, but it holds a downside as significant employee layoffs (and a still-weakened consumer) threaten the seeds of domestic economic growth over the intermediate term.
  • Savings rates will remain high, and personal consumption expenditures will remain low for an extended period of time.
  • The specter of rising taxes and higher interest rates in late 2009/early 2010 will likely impact an already fragile recovery in the economy and in the markets -- a double-dip is due then.
  • Near term the market looked increasingly exposed and the upside was certainly capped.

In mid June, as stocks moved to 2009 highs, I stressed that the markets were getting stretched ever more by investors and traders who worshiped at the altar of price momentum. I further suggested that, while the economy was getting "less worse," stocks were increasingly vulnerable and ahead of the real economy.

I went on record that a decline of between 5% and 10% was imminent.

As stocks began to slip during the following week, in " Three Summer Scenarios" I offered the view that, following the selloff, a sideways correction or a deep correction held a combined probability of 65% and that a continued rally held only about a 35% chance.

Thus far, the market action in July has been abysmal and has generally confirmed my forecasts. At Wednesday's mid-afternoon low, the S&P 500 had fallen by about 8.5% from it's yearly high, at the upper end of my mid-June forecast of a drop of between 5% and 10%.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.99 0.00%
FB $102.01 0.00%
GOOG $682.40 0.00%
TSLA $151.04 0.00%
YHOO $27.04 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs