Newly Born Bears Say . . .The raw meat for the bulls: Investor sentiment has approached levels that, in the spring of 2010 and the summer of 2012, signaled an end to corrections in those periods. Here's what I continue to wrestle with: Is this the beginning of the correction or the end of the correction? I lean toward the position that more selling is in the cards: The S&P 500, at an average 12.1x forward price-to-earnings multiple -- well off 10-year average -- says stocks are pricing in either modest first-quarter gross domestic product growth, or a modest decline. What's not priced in is more downside risk borne of an economy that feels as if it's virtually at a standstill -- because this could further delay capital-expenditure plans, impact spring retail sales and so on. While I prefer the comfy confines of Club Reality, Mr. Market has latched onto these optimistic assumptions:
- Top marginal tax rates go to 36% and 39.6%, not far removed from what we're seeing at present.
- Sequestration disaster story avoided
- Tax code revamped -- though removing certain deductions will make consumer spending rather interesting to observe come March
- 2013 is an adjustment year, not a recession year, and companies with lean expense bases could do OK against that backdrop.
- Stocks are trading above their 50-day moving average at the lowest level in a year (an oversold indicator).