THIS MONTH’S WALL:
The hard-charging market that in early January led us into a zone of complacency was rudely interrupted midmonth as nonstellar, if decent, earnings reports started rolling in. The Wall holds at eight blocks, with an equal chance of rising or falling next month. Though the current economic environment is sound and market prices appear reasonable, a bit of caution is warranted: A number of dark clouds are forming that could shock the system. It’s worth keeping some cash at hand.
The worries
1. U.S. economy: Winter rules go into effect as the slowing economy -- now declared a midcycle slowdown rather than an impending recession -- gets nudged back onto the fairway.
2. Interest rates: Dashed hopes of a first-half cut have left the market in a tenuous holding pattern. Will we get some supplemental oxygen by year-end?
3. Inflation: Labor cost increases are a nagging concern. This key metric sits on the front burner for Fed governors, investors and CEOs alike.
4. Oil prices: Year-over-year U.S. oil demand dropped in 2006. The last time that happened, John Travolta had six-pack abs. But the market won’t believe the spike is over until the price of oil lingers in the $40s for a while.
5. Consumer spending: A busload of faith has been placed on shoppers staying peppy as the rest of our economy takes a pre-spring nap.
6. Housing prices: Though often portrayed as invulnerable, Manhattan’s stalwart real estate prices dropped in the fourth quarter, finally joining nearly every other housing market in the U.S.
7. Iran: The situation becomes increasingly unstable as internal economic conditions worsen and planned short-range missile tests attract one more U.S. aircraft carrier to the Gulf.
8. Corporate earnings: Can companies wring out another year of productivity? It may be tougher in the face of slowing GDP growth.
Looking ahead
U.S. budget deficit: Big Ben says that if the government doesn’t cut its multiyear spend-tacular, higher taxes may be the only remedy -- and that ain’t good.
Iraq: Clearly, the American psyche and the world’s conscience are troubled by deteriorating conditions. The stock market? Not so much, but that may change.
China: There was a message attached to that antisatellite missile they shot into the sky in January -- and it wasn’t “Happy New Year.”
Corn: At $4 a bushel, it’s cheaper to fill your tank with gasoline. Believe it or not, a price spike in this popular food and industrial feedstock could cause a ripple effect in related markets.
OPEC: Falling oil prices may lead to rising tensions among the group’s Middle Eastern leaders. Then there’s the troubling discussion of an Iranian- and Russian-led natural-gas OPEC. No thanks!
