Has something changed? Markets are weaker today, with even market leader Apple subject to a midmorning correction, a 15-point, high-volume drop, though the stock has recovered some of the losses.
Remember the key thesis of the markets:
a) U.S. growth is accelerating;
b) China's growth is slowing due to slower global growth, but internal growth will help; and
c) the European Union and European Central Bank will provide massive stimulus to Europe and the recession there will be mild.
Economic data still support this thesis, but the data are still very choppy. Consider today:
1) China cut its 2012 growth target to 7.5 percent, its lowest in eight years.
2) Euro zone factory data were weaker, with clear signs that much of Europe is in outright recession.
3) In the U.S., the service-sectorheadline number was the best in more than a year, but the employment component was not quite as high as expected. Rising costs are an issue.
4) Greece is warning it will trigger the collective action clauses, which would be the trigger for activating the credit default swaps .
As I noted last week, U.S. stock leadership has been narrowing for weeks (mostly large-cap technology). Several key sectors have been in consolidation for a month — banks and materials, for example.
Several have rolled over to lower positions, including transports, energy, homebuilders, and small caps in general.
Bottom line: With S&P 500 index up 8.2 percent so far, and even the Russell 2000 index up nearly 8 percent, you do not need to have the main theses above reversed; stocks have come a long way and it’s not hard to argue that a period of consolidation is in order.
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