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 Downside

This commentary originally appeared on Real Money Pro on Dec. 12 at 8:18 a.m. EST.

In last Monday's column, I proposed the possibility of an uber rosy scenario -- a set of potentially more positive developments in U.S. politics, in the trajectory of domestic economic growth and in Europe's attempt to contain the debt crisis that could have a salutary impact on business, consumer and investor confidence. I opined that these factors could conspire to create a surprisingly good backdrop for the U.S. stock market in the period ahead.

Today we will consider the shorter-term challenges and headwinds to that uber rosy scenario.

Some have already emerged; others might emerge in the months ahead and disappoint markets.

By means of background, what we do know for sure is that there are continued risks associated with the impact of the current balance-sheet retrenchment and the challenges of numerous secular and structural headwinds could weigh like an albatross around the neck of economic growth. The end result is that the world's economic recovery remains imperfect and likely experiences only moderate growth relative to previous recoveries. There is little margin of safety concurrent with continued threat and a higher probability of tail risk.

Offsetting the above is that most now understand and have acknowledged these risks.

As a result, stocks are reasonably priced -- particularly as measured against any valuation model that incorporates the current low level of interest rates and contained inflation and inflationary expectations.

As I have written, there are four conditions that I thought would make or break the U.S. stock market:

  1. the market's volatility would need to subside;
  2. the sharp division in Washington, D.C., must turn to compromise;
  3. forceful policy in the eurozone was necessary to stem the debt crisis; and
  4. we wanted to see a stability/improvement in the hard domestic economic data, which would negate the possibility of an economic downturn or double-dip.

Of late, the only condition moving in the right direction is the pace of growth in the U.S. economy. The others are, arguably, getting no better or are worsening. (Reflecting these influences, stocks were stalemated in November and, thus far, in December.) These short-term challenges and risks are currently corrupting the adoption of an uber rosy market scenario.

Heightened Volatility

The binary outcomes of a stock market without memory from day to day have continued, as reflected in the daily fluctuations of risk-on/risk-off. As a result, retail investor outflows (from domestic equity funds) continue uninterrupted, as investor confidence further erodes against a backdrop of limited market visibility in an uncertain and unpredictable world.
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 $94.22 -1.00%
FB $118.10 0.57%
GOOG $696.72 0.63%
TSLA $222.47 -4.20%
YHOO $35.99 -0.06%


Chart of I:DJI
DOW 17,668.69 -82.22 -0.46%
S&P 500 2,051.97 -11.40 -0.55%
NASDAQ 4,728.9080 -34.3160 -0.72%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs