Fin - Breakout - US

Recovering From the Stock Market “Hangover”


Merriam-Webster dictionary defines hangover as the "disagreeable physical effects following heavy consumption..." and "a letdown following great excitement or excess."

Breakout guest Burt White, the chief investment officer of LPL Financial, says we had a pretty good party in the stock market and now we're experiencing a hangover of equal proportions. We're now five weeks in and  5 percent down on the major indexes, making this hangover modest but also not over.

"The booze for this party [market] has been QE2. That's the fuel," White says. But fear about the end of Fed support and a handful of other areas of concern will eventually go away and that should support the S&P 500 in the 1,250 area, which would be about an 8 percent drop from the May top. However, if that level fails, White says things could get ugly and easily drop another 5 percent. He doesn't think that is going to happen, but if it does, it would set up a much sharper sell-off, more in the neighborhood of 15 percent.

White says beyond the end of QE2 there is a lot of other "transitory stuff" roiling the markets right now that will ultimately pass. He points to the aftermath of Japan's dual disasters, flooding and other bad weather in the United States, and uncertainty in China and Europe. When it does pass, he says stocks should be able to resume their ascent for the second half of the year.

"Stocks will move back a tad more from here, but then expectations for earnings, markets, futures growth will come down," he predicts. "And that will lower the bar and make it easier to jump over."

"Face it. The market is in a transition," White says. "A transition from recovery to sustainable growth."

He calls this current mid-cycle slump a "severe soft spot" but nothing more, and is still holding out for a year-end rally.

Are your expectations low enough for the market rally to resume? Let us know what you think in the comments section below or email:

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