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Markets hurt by slow growth, high valuations

Slow growth and high valuations remain the two biggest problems for the stock market.

The slightly below-expectation print for the April jobs report (160,000 vs. 205,000 expected) is supportive of the market trend in the last several weeks: that growth—both in the U.S. and internationally—has slowed somewhat in the last month or so.

You can see this in the disappointing April retail sales, where it appears that after a decent start in the first two months of the year, sales slipped in the second half of March and into April.

You can see it in the earnings commentary. If you want to know what "lower for longer" means for energy or mining companies, look at construction & engineering firm Fluor, which gets about half its revenues from the oil & gas business. They cut their full-year guidance by 8 percent as projects are getting delayed.

Retail, shopper
Mike Kane | Bloomberg | Getty Images

The same thing is happening in Europe, where everyone from Rolls Royce to the banks have talked about slower growth. That has hurt banks and particularly commodity stocks, which have posted large rallies in the last two months on the hope for some kind of bottom.

European stocks this week:

Commerzbank down 14.7%

Deutsche Bank down 13.2%

Glencore down 15.7%

Rio Tinto down 11.6%

Antofogasta down 11.9%

Commodity countries have also had a rough week:

South Africa down 9.6%

Brazil down 6.3%

Russia down 5.5%

As have U.S.-based commodity sectors like steel and oil services, down nearly 9 percent apiece.

The hope for a bottom is still very much alive, of course. For example, European steel giant ArcelorMittal said it's still concerned about excess steel capacity in China, but it also said that spreads—prices—had improved recently, implying there might be some kind of bottom.

That has been the story of the year: the search for a "bottom." A bottom in oil. A bottom in iron ore prices. A bottom in earnings. There are signs, but everyone remains cautious.

And every time the market inches forward and tries to break out to new highs, that fear rears its head and stocks pull back.

Those high prices—and high valuations—are the other problem for the market. That's why ArcelorMittal investors in Europe are looking at the 57 percent gain the stock has had this year, and instead of believing in the bottom is in they are choosing to listen more to the company's comments about a "fragile" recovery and selling. MT is down 5 percent.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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