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

Equities Beware: Bearish Indicators on the Rise

NEW YORK ( TheStreet) -- Bearish investors pointed to signs sentiment is beginning to deteriorate, as markets continue rising in the face of geopolitical risks, mixed economic data and lackluster earnings forecasts.

Many traders pointed to the lagging performance among listed financials -- the largest industry component in the S&P 500 -- as cause for concern. Financial institutions are adjusting to a higher rate backdrop, which may hurt in the short term but should ultimately benefit them as the economy recovers. As a stronger economy boosts bank profits, a lagging banks sector calls into question the sustainability of a market rally. When the market rallied in 2013, for example, the performance of financials outstripped risk-adverse sectors such as utilities. But the returns of both sectors have been on-par the past six months, suggesting a more cautious approach by investors and reallocation away from riskier industries. As per the chart below, financials are lagging the broader market.


Another potential red flag: Fewer stocks are hitting their all-time highs. This suggests last year's rally is running out of steam, with 84 stocks hitting new highs so far this month against 229 for the same period last year. Global markets are also taking a cautious view as the S&P continues its ascent. Key European stocks, as represented by the EuroStoxx 50, have failed to reach their January highs again, rattled by factors such as geopolitical uncertainty in Ukraine. On the flipside, some argue that the outperformance of the S&P over European stocks is justified, given the relatively stronger economic and earnings outlook for the world's largest economy. Still, emerging market debt woes are seen as a lurking risk to equity sentiment everywhere as a wind back of global stimulus this year prompts the ongoing reallocation of funds away from riskier economies.


Broader risk barometers in the form of the gold price and Aussie dollar also point to investor caution. The yellow metal has rallied hard for the year to date, fueled by geopolitical and emerging market uncertainty. The prospect of en masse debt problems in China and questions around its growth composition are adding to fears. Similarly, risk currencies such as the Aussie have moved sideways for the year to date, having shed 6% over the past six months.


Bulls shrug off these indicators, pointing to the ongoing outperformance of small-cap stocks -- as represented by the Russell 2000 -- as evidence the domestic economy recovery is well in train. Similarly, Dow transports are also outstripping the broader market, while the wind-back of stimulus demonstrates the Federal Reserve's belief that equity gains can continue without support. Few expect a drastic correction this year, given the relative health of the U.S. economy and corporate outlooks relative to developed nations across the eurozone and Japan. But as U.S. stocks enter their sixth year of a bull market, bearish indicators are beginning to cause unease.

-- Written by Jane Searle in New York

Must Read: Stocks to Lack Direction for Coming 3-6 Months: Strategists

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 $95.18 0.00%
FB $117.43 0.00%
GOOG $692.36 0.00%
TSLA $232.32 0.00%
YHOO $36.01 0.00%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs