The list of uncertainties for the U.S. stock market is expanding. Pending home sales have declined for two consecutive months. Consumer spending is flat. The U.S. government is gearing up to debate the debt ceiling yet again. And, more immediately, Congress may authorize a military strike on Syria.
Perhaps ironically, I do not see conflict in the Middle East as a game changer, as oil prices will ultimately behave themselves. Nor do I think investors benefit from overplaying a “September is the worst month” card. The real threat to stocks? Time itself.
It has been nearly two full years since the U.S. stock market has experienced a 10% correction — since the world’s central banks implicitly and explicitly pledged extreme levels of monetary stimulus. Now the clock appears to be running out on the U.S. Federal Reserve’s promise, as many forecast the Fed will put the brakes on its bond-buying binge.
Housing is already struggling in the wake of higher lending rates. And from my perspective, the decline of rate sensitive funds like iShares DJ Home Construction (ITB) dramatically increases the probability of a 10% pullback in broader U.S. equities.
Perhaps ironically, the general trend toward abandoning rate-sensitive assets of all stripes has barely let up since May. One might have surmised that the specter of war would boost the safe haven status of U.S. treasuries, international treasuries, corporate credit, munis as well as dividendproducers from REITs to high-yielding equities. Alas, the prospect of bombing Assad in Syria has done nothing to curb the exodus from income-oriented holdings.
Strong Support In Congress For Syrian Strike Did Not Bolster Rate-Sensitive ETFs