Oil price: After a several-month-long drop in gasoline prices, the price of crude oil seems to have stabilized and has started to move higher over the last two weeks. Federal budget deficit: A near-term improvement in the U.S. budget deficit could be bad news for the sequestration, as our leaders become less willing to negotiate anything in the budget, and that could portend a big debt-ceiling debate/fight. Currencies: The profound weakness in the Japanese yen will temper the manufacturing export growth of some of our largest international corporations that importantly serve non-U.S. markets. This could stall jobs growth and capital spending expenditures and plans. Quantitative easing: This morning, Appaloosa's David Tepper was optimistic based on the Fed's continued printing. The Fed has printed about $1 trillion, and this year, the U.S. exchange's market cap has risen by $2.5 trillion. That is quite a lot of bang for the Fed's buck! In other words, Tepper says that the Fed's printing press is going into stocks -- and will continue to do so. But the stock market wealth build already well exceeds the expected 2013 EPS growth -- plus the $1 trillion of fresh money printing. To me, The Wall Street Journalcolumn on Friday night by Jon Hilsenrath was a shot across the bow to prepare investors for "halting steps" in printing. I expect that the Fed could pause/taper in the second half of 2013. If so, interest rates will rise, providing a headwind to interest-rate-sensitive domestic economic sectors and result in more competition to equities.
Today's opener focuses on the prospects for subpar domestic economic growth. The outlook for Europe and China remain even more uncertain than the U.S. The S&P 500 is up 15% this year, as P/E valuations have been revised higher. This has occurred in the face of flat sales, about a 2.5% increase in corporate profits and profit margins that are about 75% above the long-term average. I continue to view corporate profit growth expectations, in the aggregate, as too optimistic and stocks as overvalued.