After the huge rally since late last year, Citi’s Tobias Levkovich is out sounding a note of caution.Generally he’s still a bull, and sees the S&P ending the year at 1425, but for now there are a few reasons to be worried.
Here they are, summarized quickly:
- Investors sentiment is no longer depressed, per Citi’s proprietary Panic/Euphoria model.
- Citi’s own Economic Surprise Index is rolling over.
- The firms Cyclical Expectations Model is rolling over.
- Margin pressures are building.
- The election cycle is inevitably going to start bringing more uncertainty, especially as it relates to taxes and spending cuts in 2013.
On this note, Levkovich hits on a point he’s made before about the significance of the election:
Furthermore, we suspect that more uncertainty with respect to the upcoming US Presidential/Congressional elections will develop in the next few months, especially as investors begin to consider the reality that tax cut and spending programs will expire at the end of 2012 alongside the sequestration process that will account for 3.4% of GDP in 2013 if nothing gets enacted. We would further point out that who wins the elections will probably have inordinate influence on the direction of four areas of the market (financials, health care, energy and defence) that collectively account for nearly 40% of the S&P 500’s market cap. As such, one has to recognise that some near term market performance risk is increasing.