Is the Stock Market Headed for a Downturn?


Since its lows in 2009, the Dow Jones Industrial Average has basically doubled. Many investors have been extremely happy with the rise in the value of corporate stocks. But experts wonder if this stock rise has been based on fundamental improvements in the economy or the cheap money policy of the Federal Reserve.

In 2013, many of the same problems from 2008 remain – weak housing market, high debt and high unemployment. These continue to drag down the economy. If there is another downturn in the stock market in 2013, it could be worse than in 2008.

“Be Careful of What You Wish For”

The Federal Reserve has instituted a Zero Interest Rate Policy to stimulate growth with cheap capital. This is akin to pump priming a well. When it goes well, it helps increase productivity; when it goes badly, it creates speculative asset bubbles.

Billionaires, such as Marc Faber and George Soros, are warning that the stock market may be headed for a downturn. They see cheap money being used to inflate stock prices without any real commensurate increase in productivity. These experts see lukewarm sales figures, decreasing stock market volume and numerous long-term problems that could drag stocks down very quickly.

“What Goes Up, Must Go Down”

Forbes noted on April 17, 2013 that lackluster national productivity growth rates, unemployment and housing all suggested that the economy may worsen ( The Washington Post reported on Tuesday, August 27, 2013 that crude oil prices reached an 18-month high. In fact, anyone can click on “” and look at the numbers under “Food Stamp Recipients” to see that more than 47 million Americans need help to purchase the bare necessities.

If Americans do not have money for “food” or “housing,” then they are much less likely to purchase expensive electronics, go out to a fancy restaurant or upgrade their washing machine. Zerohedge reported on August 26, 2013, that CapEx spending was down 19.4 percent in Transportation, 19.9 percent in Computer and 9.8 percent in Manufacturing.

Experienced investors, like Marc Faber read the market signs and are comparing the August 2013 S&P market action to the August in 1987 before October 19th’s Black Monday. George Soros has also turned bearish on the S&P. The most experienced investors get out of a declining market before the average investor.

“Numerous Hindenburg Omens”

Every investing professional has his favorite indicator. The “Hindenburg Omen” is triggered when four indicators are reached suggesting a major stock market collapse within 40 days. What is interesting about the “Hindenburg Omen” is not its accuracy in predicting a stock market downturn, but its compilation of material facts suggesting that a market is overbought and volume is low.

Without getting two detailed into the exact calibration, the Hindenburg Omen measures new highs and new lows compared to declining volume. In fact on August 28, 2013, Zerohedge created a chart showing that S&P volume was at 16-year lows (

“The Stock Market Could be Headed for a Downturn”

Experts believe that the stock market is overbought with cheap speculative money provided by the Federal Reserve. There is not much real productivity behind the price gains. Smart money is leaving the market as noted by the reduction in volume. The stock market could be headed for a downturn.

Submitted by: Lindsay Baker

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