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In a new piece on BlackRock's iShares blog, Russ Koesterich writes that the current stock market rally has been fed by relief from the fiscal cliff deal, seasonal strength, and better than expected global economic data. But these three things are temporary and he expects this rally to slow in coming days or in February for three key reasons.
1. "Expect a good deal of headline risk coming in the next couple of months. Investors should expect continued dysfunction from Washington as lawmakers wrestle with the debt ceiling, scheduled spending cuts and the need for continuing budget resolutions. Not only are the odds of some sort of “grand bargain” diminishing, but the current bickering raises the possibility of another last-minute showdown and a potential debt downgrade."
2. "There is political risk coming out of Europe, with Italian elections approaching in February. Should the election fail to produce a clear result, or should the voters choose a less market-friendly government than the one currently headed by Prime Minister Mario Monti, markets would likely react negatively."
3. "There are lingering concerns about the US economy. Once we get a look at January month-end data, we will see the first clues about how higher taxes are impacting the economy. Notwithstanding some of the stronger data cited earlier, I expect the first quarter to show relatively soft economic data. In particular, I’m concerned about consumption levels weakening in January as people come to grips with smaller paychecks."
Wall Street trade group The Securities Industry and Financial Markets Association (Sifma) expects the SEC to implement stricter ethical standards for brokers by March.
"Only investment advisers are currently bound by a fiduciary duty, meaning they must always act in their clients' best interests. In contrast, brokers must ensure their investment recommendations are suitable for the client, based on factors like age and risk tolerance.
…The brokerage industry has backed the idea in principle, but has strongly opposed applying a set of rules that hinders brokers' ability to conduct business as usual."
The Greatest Investing Lesson Of The Past Five Years (CFA Institute)
The CFA Institute poll just under a thousand investors about their greatest investing less in the past five years. They found that nearly 60 percent of investors said, "central banks and governments will continue to bail out troubled creditors".
UBS: Stocks Are In For A Rough Ride (King World News)
UBS' chief technical analyst Peter Lee thinks stocks could plunge 42 percent from their current five-year highs by 2014. He points to historical mean-reverting data that he says is "100 percent accurate."
"We’re not done yet. Everyone thinks that we’re nearing the end of the bear market, or structural sideways trading market. We suspect we probably have another 5 to 8 years of this. No one wants to hear this call because investors have already been frustrated by the last 13 years.
"We have run a number of internal studies dating back to 1800, and the track record has been 100% accurate. Every single time we have overextended market to the upside, we see a ‘mean reversion’ back to normal levels. Again, this is 100% accurate going back to the 1800s.”
Mathematician and portfolio manager Naufal Sanaullah has put together a guide to the economy and markets in 2013.
In the presentation he gives us bullish (recovering home prices, improving PMIs, central bank easing) and bearish (weak U.S. demand and credit growth, eurozone recession, central banks running out of bullets) market trends. This chart shows that consumption though resilient, has been anemic as seen by its contribution to GDP.
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