The Stock Market Is On The Verge of Another Historic Collapse: Things Keeping Stocks From Corrections Are Also The Ingredients For A Stock Market Crash
May 7th, 2013
3 Things Investors Are Telling Themselves To Explain The Divergence Between Stocks And The Economy
“Four months into the year, we are confronted by two indisputable facts,” says BofA Merrill Lynch rates guru David Woo. “One, U.S. data is weak. Two, markets are no longer troubled by weak U.S. data.”
The question Woo poses in his latest note to clients is simple: “Does anyone still care about weak data?”
Woo says no, citing three things clients are saying to rationalize this apparent disconnect:
Clients who believe we pay too much attention to weak data have laid out three reasons why we are wrong.
One, data points to slow growth ahead but there are no signs yet for a very sharp slowdown (“bad news is not bad enough“).
Two, weak data means the Fed will be on hold for longer (“bad news is good news“).
Three, the impact of US fiscal tightening is ultimately transitory and when it starts to fade, the US economy will roar (“good news will follow bad news“).
Woo concedes that these are all actually good points in that they coincide with the BAML house view on the outlook for markets and the economy.
Why the Next Stock Market Crash Will Happen Any Day Now