Talk to traders today and they'll tell you the market has no conviction or direction. Trading Tuesday and Wednesday morning was described as "eerily quiet." Ask most pundits and they'll tell you that's because of uncertainty over Europe, where leaders are set to meet Thursday and Friday for the latest 'make or break' summit. (See: Europe's "Slow-bleed Emergency": Same Crisis, Different Week)
As is often the case, Barry Ritholtz, CEO of Fusion IQ, has a different opinion.
"Is this news to anybody that Europe is running into trouble?," he wonders. "All this sturm und drang over Europe is pretty well reflected in the market. It's understood."
Rather than fear of a Lehman-like event, Ritholtz says the market is being held back by the simple fact the global economy is slowing. And it's slowing down at the same time U.S. corporate profits are at record highs. Considering about 50% of S&P 500 profits come from overseas and about half of that comes from Europe, it makes sense the market has stalled.
"The only thing I believe is keeping most investors in 'risk on' expectation...is 'as soon as this gets really bad, QE3! QE4!'," Ritholtz says. "And they don't want to be out of the market because they'll miss that."
Here again, Ritholtz bucks the conventional wisdom and is "downshifting" and reducing exposure to equities. "I don't know if there's an appetite or political will for QE3 or 4 until things get really bad," he says, further noting the impact of each Fed move since QE1 has been smaller than the one prior.
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