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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Market Preview: Fear of Topping Out

NEW YORK (TheStreet) -- Stocks are meandering of late as investors and market strategists alike struggle to recalibrate expectations in this new world of never-ending QE.

The mood is such that even a boost of a year-end S&P 500 target can have an almost begrudging feel to it. UBS lifted its outlook by 11% on Thursday to 1525 from 1375 but the commentary around the move was hardly gushing.

"While we're raising our year-end price target, we continue to believe that macro headwinds will hamper stock performance over the intermediate term," the firm said. "These include a coordinated global economic slowdown, weak earnings growth, potential negative side effects from unprecedented monetary easing, the fiscal cliff, uncertain election outcomes, the future of the Euro, and a burdensome regulatory environment. We believe the current market rally will continue until these issues grab headlines once again."

UBS thinks ultimately this round of quantitative easing is likely to play out the same way as previous programs.

"While central bankers' actions to avoid financial catastrophe have been very successful, efforts to spur economic growth have been far less effective," the firm wrote. "Looking at the market's responses to the extension of QE1, QE2, and Operation Twist, it's clear that stocks respond for a period of time, before rolling over when macro concerns move to the forefront and fundamentals ultimately lag elevated expectations. This has resulted in a "risk on, risk off" trading environment, primarily driven by multiple expansion and contraction, rather than a sustained improvement in underlying fundamentals."

In the near-term, UBS is expecting a rotation into "the most volatile and economically-sensitive stocks" with outperformance from "early-cycle cyclicals, such as Energy, Materials, Autos, Homebuilders, and Diversified Financials" while non-cyclicals like consumer staples, health care, telecom and utilities lag.

The firm also made the argument that so much bond buying by central banks can potentially hamper economic growth by adding to the macro fears that have stunted job creation.

"For companies, additional Fed stimulus undoubtedly lowers borrowing costs and provides a temporary boost to stock prices," the firm said. "However, we believe the primary culprit holding companies back from hiring and making long-term investments is tremendous uncertainty around a number of macro issues, including large fiscal imbalances, interest rates, inflation, commodity prices, currency values, tax rates, and regulation. Arguably, an unprecedented increase in the size of central bank balance sheets creates even more uncertainty around these issues."

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs