March 11, 2011
Sheraz Mian
Director of Research
A Tsunami alert has been issued for the U.S. West Coast in the wake of the massive earthquake that hit northern Japan earlier today. This is just the latest in a string of negative headlines reaching our shores in recent days, putting a damper on the bull market that crossed the two-year low mark earlier this week.
Some have started calling the ongoing stock market softness the onset of a major correction. While I am not one to discount the signficance of the headwinds facing the U.S. economy, I am not buying into the doomsday scenarios, either.
Oil remains a challenge, but the recent spike is unlikely to endure as the global economy remains well supplied. More importantly, the U.S. recovery has moved on to a more sustainable trajectory and remains better positioned than before to withstand the emerging shocks.
The negative news flow of recent days, almost all of it from abroad, has arrived at a relatively quiet time in our economic calendar. This affects the stock market in two ways, both negative.
First, no prizes for guessing which way stocks would move as headlines scream about turmoil in the Middle East and high gasoline prices at the pump. Second, all recent economic reports have pertained to periods that preceded the start of the oil spike in the mid-to-late February. As a result, the market has been unable to handicap what impact, if any, the oil spike is having on the real economy.
The market will remain tentative in the coming days as it digests all this negative news flow. Images of destruction from Japan caused by the strongest earthquake in that country’s history only add to this sour mood.
This is not the onset of a stock market correction; it is just a period of tentativeness and lack of direction.
P.S. What is Zacks Ahead of Wall Street? To find out more about Zacks Ahead of Wall Street, click here.
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