As I write this article, I see that the pre-market S&P futures are up a strong 13 points, which indicates a big opening for stocks. I think that it’s my contrarian nature, but I can’t help but think of all the potential dangers lurking out there. Even if you are bullish, I believe it is a good exercise to think about things that would prove your thesis wrong. Here are some of the negatives I see for investors on the horizon.
Greece: I don’t think investors are paying enough attention to the deteriorating condition across the pond. Barrons had a nice cover story discussing their options. Greece must take painful measures to restructure its debt or face severe consequences. This would have negative effects on the Euro, which would be bad for stocks in the U.S. I seriously doubt that this has been fully priced into stocks.
The Fed: We are about a month away from the end of QE2, and it will be interesting to see how the market reacts. I think some of the recent weakness has been anticipating the end, but the lack of liquidity will be tough on the riskier assets. The jury is out on how successful the program has been, but our economy is still growing well below trend.
Economy: A recent revision to GDP showed no upward movement to the original 1.8% reading. Consumer spending was also revised down considerably, which is a symptom of weakness. A lot of analysts are saying we are in a temporary soft patch which will reverse soon, but Teheran market will drop if it doesn’t.
These are just a few of the negatives that are running through my mind as I see the futures soaring. I think I would be thinking of the positives if the market was crashing. Keeping an unbiased mindset and challenging your thesis will always help you in the long run. By doing this, you will be less likely to be caught off guard if the market turns against you. At the very least you will know the risks facing the market.
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