Preventing the Crash—Why It’s Just So Simple

It’s time for stock market investors and speculators to be extremely cautious. We’re in an environment now of so much uncertainty that the risks to the stock market outweigh potential returns. The broader stock market has the potential to experience a significant correction in the near term, if policymakers don’t act on the sovereign debt crisis in Europe and the “fiscal cliff” in the U.S. Just at a time when the economic news in the U.S. economy is showing an upward trend, fiscal policy is now a major threat to your pocketbook.

The perfect example of the more positive U.S. economic news is evident in earnings from The Home Depot, Inc. (NYSE/HD). The company’s numbers recently beat the Street, and they show that the U.S. housing market is improving. Home Depot’s stock chart is featured below:
But, the U.S. economy isn’t the big worry for the stock market right now—it’s the uncertainty regarding global fiscal policies, and meaningful policy action is required in order for the stock market to advance.
There is good potential for a major stock market rally next year on the back of an improving U.S. economy. We know that over the short term, corporate earnings growth is going to fall, based on weakness in the global economy. But, U.S. corporations are in extremely good financial shape; with all the cost cutting to maintain their earnings, U.S. corporate balance sheets have never been better. The only major hurdle to the stock market is government fiscal problems, and the uncertainty this creates is holding back the equity market.

Fourth-quarter earnings expectations have come down, but stocks are still fairly valued at this time. This gives the stock market a lot of leeway to bounce around, but not come apart. I think we’re going to see continuing positive news regarding the U.S. economy going into 2013 and that the stock market can rally on the news if other problems are addressed.

Over the very near term, investment risk for new positions in the stock market is very high. The U.S. economy and corporations are doing their part; now all that remains is for policymakers to create more certainty in the system. If there isn’t decisive policy action regarding the world’s fiscal problems over the next several weeks, the stock market will be in real trouble.

Source: http://www.pennystockdetectives.com