Dow to Tumble as US Economy Faces Headwinds: Strategist
The Dow is going to break out of its current trading range to the downside, as the U.S. economy continues to face major headwinds, Richard Suttmeier, chief market strategist at ValuEngine.com and Niagara International Capital, told CNBC on Monday.
The Dow Jones Industrial Average is stuck in a 2,250 point trading range between 11,250 and 9,000, Suttmeier said.
"You're going to have these volatile ups and downs in between there. You get up to the high end of the range and you have stocks overvalued, overbought. You get to the low end of the range and they're no longer overbought, they become undervalued," he added.
But over the longer term, that trading range will break, and it is more likely to break to the lower end, around 8,500, before it breaks out above 11,500, Suttmeier said.
Suttmeier stated that an upcoming downturn in housing prices and job creation in the U.S. were reasons for his pessimistic outlook.
"The housing market is starting to get a little 'toppy' with the tax credits expired," he said.
In the second half of the year, when there will be no more tax incentives, housing prices are going to start to come down because of the level of foreclosures, which is still high, Suttmeier said.
"The banks, particularly the smaller banks in the United States, still have all of these loan losses that are coming and they're going to be cascading right through the banking system with bank failures," he added.
"With a 9.9 percent unemployment rate, you need job creation even more than what we got on Friday," Suttmeier told CNBC. "We're just going through a few more months where we may see this job creation. But once we get into the second half of the year, there's going to a disappointing lack of job creation given the uncertainties that are around the world."
The economic effects of the volcanic ash cloud, the oil spill in the Gulf of Mexico and the sovereign debt crisis in Europe have not yet been resolved, and these will continue to weigh on market sentiment, Suttmeier said.
The "$1 trillion TARP for the euro" is unlikely to "filter down to Main Street all over Europe," he added.