Investors reportedly are running out of reasons to keep buying U.S. stocks amid a growing number of warning signs.
While it is too soon to call the end of the eight-year bull market, investors, traders and analysts told The Wall Street Journal that “the indiscriminate optimism that characterized the postelection rally is evaporating.”
There is now more that can go wrong than right, the Journal explained.
“Political rifts, including President Donald Trump’s deteriorating relationship with several business leaders in the wake of the Charlottesville, Va., demonstrations, have magnified investors’ doubts about the administration’s ability to accomplish its agenda, in particular the tax cuts they had anticipated would boost corporate profits,” the Journal explained.
The S&P 500 ended up slightly on Monday after two days of declines, though simmering tensions between the United States and North Korea kept investors on edge and a drop in oil prices weighed on energy shares, Reuters reported.
The Dow Jones Industrial Average rose 29.24 points, or 0.13 percent, to 21,703.75, the S&P 500 gained 2.82 points, or 0.12 percent, to 2,428.37 and the Nasdaq Composite dropped 3.40 points, or 0.05 percent, to 6,213.13.
The Dow ended above its 50-day moving average after briefly falling below it during the session, while the S&P 500 remained below the 50-day technical level.
Absent U.S. economic data or other headlines, "it’s a quiet Monday and people are still feeling the effects of last week. Now that earnings are over there’s just not a whole lot of catalysts," said Ian Winer, head of equities at Wedbush Securities in Los Angeles.
While the benchmark S&P 500 index is still up 13.5 percent since the election, it had fallen 2.1 percent in the last two weeks. That's the most since the two weeks before the election.
“How the market has behaved since Nov. 9 in many ways seemed like a disconnect from reality,” Kristina Hooper, global market strategist at Invesco, told the Journal. “Investors are starting to recognize that.”
Nearly 33% of investors surveyed by the American Association of Individual Investors said they expected stock prices to fall over the next six months, the highest level since May, the Journal explained. About 34% of investors had a bullish outlook, according to the most recent survey.
Investors have turned their focus to the Jackson Hole meeting of Federal Reserve Chair Janet Yellen and other global central bankers, due to start later this week.
Investors are angling for the slightest hint on where monetary policy is headed. Fed Vice Chair William Dudley, who has in the past taken a more dovish approach to policymaking, earlier this month said the fact that financial conditions have recently eased despite Fed rate increases is a reason to keep plans to tighten policy in place.
"That confluence of strong growth and low inflation, which is somewhat like nirvana for equity investors, we don't think can last forever," said Wayne Wicker, chief investment officer at ICMA-RC in Washington.
"We're hopefully getting a couple of more data points to see where the Fed takes their temperature on where they're feeling the economy is at this juncture so that we can anticipate if something happens in the fourth quarter or not."
The United States and South Korea began long-planned joint military exercises on Monday, heightening tensions with North Korea, which called the drills a "reckless" step toward nuclear conflict.
Tensions between the United States and North Korea and turmoil in the White House have caused stocks to sell off in the past two weeks.
Concerns over lofty valuations have caused some investors to cut their exposure to U.S. stocks, instead favoring valuation multiples of companies based in Europe, the Journal reported.
“The U.S. has been priced for perfection,” said Steven Wagner, chief executive of Aventura, Fla., advisory firm Omnia Family Wealth that has moved more of its clients into European stocks from those in the U.S. over the past year. “People are starting to get uncertain and rethink” U.S. stock valuations, he told WSJ.com.
To be sure, many other respected market pundits have predicted a volatile future for the stock market.
Former Republican congressman and two-time GOP presidential candidate Ron Paul warns that a hefty plunge looms for the stock market, but savvy investors can hardly blame Trump for the carnage.
The former Republican Congressman from Texas blames a buildup of political dysfunction in Washington over recent years.
"A 50 percent pullback is conceivable," Paul told recently CNBC. "I don't believe it's 10 years off. I don't even believe it's a year off. "
The Newsmax Insider fears such a market plunge would cut the S&P 500 Index in half, to 1212, and the blue-chip Dow Jones Industrial Average would collapse to 10,837.
(Newsmax wires services contributed to this report).
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