Worries About US Stock Market? Hey, It Sure Beats Other Places

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Despite its own significant problems, the U.S. has managed to hold one claim through a time of heightened global crisis: It's not as bad as a lot of other places.

That position as much as anything has helped put a bid in the domestic stock market, which has roared to strong gains in 2013 thanks in large part to money flowing out of other countries and back to the U.S.

"It's the asset class of last resort," said Art Hogan, managing director at Lazard Capital Markets in New York. "You've got slow and stable economic growth as a backdrop. You've got aggressive monetary policy and you've got a corporate America that's mean, lean and delevered and multiples that are reasonable."

The result has been a gain approaching 9.5 percent for the Standard & Poor's 500 and nearly 11 percent for the Dow Jones Industrial Average.

Positive moves have been harder to come by for global markets, and with the European debt crisis flaring up again, the incentive gets greater for money to make its way to American shores.

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For the year to date, the average global stock-based fund is up just 2.8 percent while the average U.S. equity fund has gained 8.6 percent, according to TrimTabs. Money invested in global funds has fallen sharply, with U.S. equity mutual and exchange-traded funds taking in $19.4 billion in March compared with just $7.8 billion for global funds.

There have been some exceptions, most notably Japan, which has taken in a record $5 billion in fresh ETF money this year as its stock market has zoomed thanks to central bank easing. But that has been offset by flows out of Chinese and European funds and a feeling that the tumult is being least felt in the U.S.

"While the U.S. has had its issues and still does, we're still in a better position in the near term than most of these other markets," said Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles. "The U.S. is a relatively better house in that neighborhood, but the neighborhood itself isn't trouble-free."

Indeed, the fragile state of economic growth has caused many market participants to predict a pullback that has yet to happen.

One possible catalyst that could fulfill those bearish forecasts: The upcoming earnings season that looks to be loaded with minefields.

Negative company earnings preannouncements have outnumbered positive by more than 4 to 1 so far, indicating that corporate CEOs are trying to brace the market for unspectacular first-quarter profits.

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"Consensus corporate profit estimates are too high," Doug Kass, head of Seabreeze Partners Management, said in a note. "Even a slight reversion to the mean in profit margins will severely undercut analysts' expectations of growth in 2013 and 2014. Maintaining today's margins is a high-wire act that even the best of the Flying Wallendas could not navigate."

Even when the market pulls back, though, buyers have simply stepped in to pick up the slack, a pattern followed in Wednesday's trading when the market bounced well off its lows in afternoon action.

"It's much more of an earnings growth deceleration that could cause things to roll over a little bit," Hogan said. "But I get a sense that since there's a consensus call for a pullback, the pullback will be met with buyers."

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So long as the U.S. market can maintain the storyline that it is better than most of the other options, equities likely will hold their own.

But the toughest test of that notion lies ahead.

"If you're enthusiastic about stocks now, you've relying on the U.S. economy re-accelerating in the second half of the year," Flam said. "I just think it's a little early to say that."