5 Ominous Signs for Stock Investors
Some experts are worried that the end of QE2 could cause a selloff
After the quickest doubling of the
End of QE2.
Part of the intended goal of QE2 -- in which the Fed is buying up
A stronger dollar.
In recent weeks, the dollar has strengthened against other currencies, such as the Euro, and experts say it could go even higher after the end of QE2. The U.S. Dollar Index, which tracks a basket of foreign currencies against the dollar, is down about 4 percent year-to-date, but it has risen by about 4 percent so far during May. Some experts say a weaker dollar has contributed to the stock market rally because it helps make the products of multinational companies cheaper overseas, which translates to higher earnings and stock prices. "Clearly, the weaker dollar has been part of the fuel which has driven commodity prices and equity prices higher," says
Weaker economic indicators.
A number of recent economic indicators have shown a slowdown in growth, one of which was this week's Richmond Federal Reserve survey, which showed an unexpected drop in manufacturing activity. "What you're seeing right now is the market readjusting, recalibrating, and waiting to see economic data," says
Historically, the six-month period that begins in May and ends in October is a slow time for the stock market. As summer approaches, trading volume typically trends lower than in previous months. From 1950 through 2010, during the period of
Most experts thought treasury yields would rise as QE2 draws to a close, because the Fed is no longer buying treasuries. But the opposite has happened. Earlier this year, the yield on the 10-year treasury rose to nearly 4 percent. Now, the 10-year treasury bond yields around 3.1 percent. A lower yield means that investors are once again buying treasuries. "I think that's a bearish divergence," Ross says. "It's telling me investors want safety."
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