The US presidential elections are coming and the likelihood of approaching market correlation is growing. Is there a need to worry about the US stock markets?
7 September, AtoZForex – The NYSE and NASDAQ stock markets have been supporting bullish trend since 2009. The NYSE has rebounded to almost 11,000 from a point of 4,716 during the financial crisis period.
Will there be a correction?
A correction of 10% was noticed early this year, as US stock markets sprang back firmly. It is not so often for stocks not to note a major market correction in the period of more than 8 years. Some of the experts say that macroeconomics essentials are not firm enough to sustain stock valuations, even with the US well economic performance.
However, the stock markets have gone up at a steady pace. The likelihood of stock markets having a correction in the near future is rising, as the presidential elections in the US are approaching. Such kind of events always had some kind of effect on the market moves.
3 reasons to worry about the US stock markets
Let us present to you three worries regarding the US stock markets.
Firstly, a large part of economic data signals that the US economy state is in the sluggish-growth mode. Almost a year ago, some of the experts believed that there will be “shoots of growth” in the US economy. However, the growth of the economy was moving slowly at a rate of about 3% a year, and the Federal Reserve started to raise the interest rates. Afterward, the economic data began to drop with the Q1 of 2016 figures of economic growth showing the annual rate of 1.6%. In July 2016, the growth pace was at 1.2%. This surely not the kind of growth needed for sustainable financial markets functioning.
The second worry comes as the stagnation trend in the European economy. Some of the European countries currently are experiencing quite a crisis, where the EU economic growth appears stuck at around 0.5% GDP growth for the period of 5 years. Moreover, the latest figures indicate a GDP growth rate of 0.3% a year. This sluggish trend for development in the EU economy state holds even with the monetary and fiscal stimulus, which has been provided for a couple of years now. It is a challenge for the US firms to develop with the rapid speed when their biggest trading partner’s growth is in stagnation.
The third worry appears in the face of declining US earnings. Even though the current year is signaling to be strong for S7P 500 earnings over 10%, the figures in 2015 show a poor performance of -7%. The analysts’ prediction for 2017 also indicates a weak trend with estimates ranging between 7-8% of earnings-per-share (EPS) growth. The Goldman Sachs US equity team believes that the performance of the energy industry will continue to pull the US corporate earnings down in 2016 and 2017.
Think we missed something? Let us know in the comments section below.