SET TO CONTINUE
tremendous string of good news which the economy has delivered”, according to Jim Paulsen, chief investment strategist with Leuthold Group in Minneapolis.
But he said, the news is too good: “The problem with getting good news is that at some point you can’t be positively surprised any more.”
Paulsen does not expect a recession. But when the economic surprise index — which compares economic data to consensus expectations — is at high levels, equity performance tends to be weaker, according to Paulsen.
The Citi Economic Surprise index was at 77 on Thursday, not far from its almost six-year high of 84.5 reached on December 22.
“We’re going to have a 10-15 per cent correction at some time this year. I wouldn’t be surprised if we’re down for the year,” said Paulsen.
Investors will keep a close watch on the on US mid-term elections because a Republican loss of control of the Senate or the House of Representatives could stall the party’s agenda.
In 10 of the last 17 mid-term election years, equity price moves for the full year followed January’s direction, according to Jeff Hirsch, editor of the Stock Trader’s Almanac.
Investor moods in January may depend on whether the US Congress reaches an agreement to raise the country’s debt ceiling. Investors will also be hoping Congress can reach a budget pact by January 19. These are just some of the worries traders are contending with.
But the market has history against it.
The S&P 500 rises on average 1.3 per cent in the so-called Santa Clause rally — the period between December 22 and January 3 — according to Hirsch. Five days in, the S&P has risen just 0.1 per cent.
“The failure of stocks to rally during this time tends to precede bear markets or times when stocks could be purchased at lower prices later in the year,” said Hirsch. Reuters