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Todd Harrison: Market's slide a sign we're not yet in the clear



As political sex scandals and promises of fresh tech IPOs jockey for mindshare this week, the stock market quietly has slipped from atop its perch.

At the Reuters 2011 Investment Outlook Summit on Tuesday, I offered that the action under the hood of the market suggested the bears have their best chance this year to make a downside statement.

“This is not a market for hope,” I told reporters. “There’s no shame in admitting it’s hard — there’s only shame in pretending that it’s not.”

What am I basing this assessment on? A few items, in no particular order:

- The mainstay indices — the Dow Jones Industrial Average, the S&P 500 and the NASDAQ — share a similarly sullen pattern of “lower highs.”

- The former stock market leaders — Google, JP Morgan, Goldman Sachs, etc. — have been under pressure; without those generals leading by example, the rest of the troops could lose their way.

- Bank stocks, which generally lead the broader market in either direction, are acting like crap — the KBW Bank Index (BKX) is down 16 percent since Valentine’s Day, compared to a 4 percent decline in the S&P.

- The dollar index is attempting to establish a “higher low,” which is potentially bullish for the dollar. While asset classes and the dollar can both decline, I don’t foresee a scenario where they’ll rise together. A stronger dollar is a headwind to higher stock prices.

- The spring of discontent in the Middle East has morphed into a hot and bothered summer, and the specter of geopolitical strife has both tangible implications (such as higher crude, which is an implicit tax on the consumer) and intangible consequences (such as social mood, which shapes investor risk appetites).

To be sure, there are two sides to every market — a bull case and a bear case — and the residual grist will shape our financial path.

While corporate credit markets continue to suggest higher stock prices, the destination we arrive at pales in comparison to the path we take to get there, and it promises to be a wild ride.

Until the tenor of the financial stocks, patterns of lower highs, emergence of leadership and the direction of the dollar shift, we should remember that capital preservation is the first step toward wealth accumulation. 

Todd Harrison is the author of “The Other Side of Wall Street” and founder and CEO of Minyanville, an Emmy Award-winning financial media platform. Read him daily at

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