After Feb, stocks have recovered sharply and have now recouped all of their losses. From their lows, U.S. stocks declined 5.8%. That's barely a correction, which is typically at least 10%.
Majority of global markets, in fact, are trading at all-time highs again! The appetite for risk-taking was rapidly quashed in late February following China's big 9% market plunge. But now it's back with a vengeance this Apr with the infamous carry-trade back in business, as yen continues to weaken.
So far, S&P 500 earnings are modestly beating estimates for Q1. But at some point this year - perhaps as early as May - stocks may suffer another major decline, and probably more severe than February's short-term mini-crash.
Worst is, the Federal Reserve is in no hurry to cut interest rates. As long as employment growth remains strong and core inflation is high, the Fed won't budge. So it's fair to assume that stocks won't receive an immediate boost from lower rates.
Worse still, the sub-prime mortgage crisis might spread to other banks hurting the consumer. So far, they've remained resilient over the last several months, despite high oil prices and falling real estate values, but consumer spending is bound to retrench at some point.
The way I see it, this scenario increasingly looks like a house of cards. One layer after another, the foundation is becoming weaker. It's going to be ugly.
So far, the market has apparently discounted the worst of the sub-prime crisis. But many analyists don't like the short-term picture for stocks and other risk-based assets.
It's now over four years since we've seen a meaningful correction. And with margin debt at all-time highs again, cross-border deals and M&As at manic or bubble levels and everyone obsessed with private equity, I see another one on the way. Plus, we're about to see seasonal weakness set in, as we enter the worst time of the year to be invested in stocks, which begins in May and lasts until late September.
Signs of a top, at least an intermediate top. So, selling?
For me, I am planning my long-awaited trip to KK (Kota Kinabaru). Never do that before but I think it will be fun, compare to watching the market goes south. Friends said I need some training for Mt Kinabaru.
Well, Mt K, here I come!
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