The Bull 'n Bear: Short in May and Go Away?
Is is just me, or is this market starting to look like that of 2010? Last year, the S&P 500 (and investor complacency) peaked in April above 1,200. Then Europe's sovereign debt woes took center stage; combined with fears of a double-dip recession in the U.S. economy, these factors were the catalysts for a significant correction that lasted until July, with the market falling below 1,050. Sound familiar?
Standard & Poor's just downgraded Greece by two notches. Even European politicians are now beginning to recognize that the initial $110 billion European bailout is insufficient and will need to be augmented. There is even some talk of debt "re-profiling" (i.e. extending maturities), but Standard & Poor's isn't letting the technocrats get away with that euphemism and has pre-emptively announced that they will consider that a voluntary restructuring is, in fact, a selective default. Given the yields on Greek debt and the cost of Greek CDSs, the market is clearly anticipating that outcome.
I have been saying that Greece is highly likely default on its debt for quite a while now. Let me emphasize that this required no particular foresight -- all I do is follow the right commentators and analysts (in this case, Wolfgang Munchau of the FT has been particularly insightful).
I don't think we can conclude from all of this that the U.S. market will necessarily correct, but given overall valuations, that risk is always present.
Enjoy your day!