September is kicking off with a whimper after the release of U.S. and Chinese manufacturing data and Moody's (MCO) warning of a rating downgrade for the European Union. The U.S. ISM reading ticked down to 49.6% in August, versus an expected 50.2%. China's official Purchasing Manager's Index slid to 49.2 in August from 50.1 in July. For both measures, below 50 indicates manufacturing activity contracted.
The market will likely tread water ahead of some big events later this week including an ECB meeting on Thursday and the U.S. employment report on Friday.
Regardless of these short-term, potentially market-moving events, investor Paul Schatz, president of Heritage Capital says this bull market is running out of steam and a few strong stocks have been masking that reality.
Schatz calls Apple (AAPL), Google (GOOG), and Amazon (AMZN) the generals of the market holding up the major indices, particularly and obviously the Nasdaq (^IXIC). While these stocks are posting gains for outpacing the broader market since the start of the bull run in 2009, in his opinion, investors are fleeing other areas of the market.
"Bull markets die hard, at the end this is what happens," he says.
Here's how the major indices stack up against the stock trio since early March 2009:
S&P 500 +90%
Dow Jones Industrial Avg 84%
"It doesn't end well," he predicts. "If you look at historical examples, the story stocks are hit anywhere from mildly 30%, and in a bad case like we saw in '07 to '09, 60 or 70%."
Schatz sees this bull market drying up in 2013 or possibly into 2014. He advises watching for deterioration in market leaders Apple, Google, and Amazon as the first warnings of the next downturn.
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