BRIAN BELSKI: 14 Big Risks For The Market

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Photo: AP Images

Brian Belski, BMO Capital Markets’ new top strategist and the former top strategist at Oppenheimer, just published his new equity strategy outlook.”We believe tailwinds persist that will ultimately drive US stocks into the next fundamental secular bull market,” he wrote. “However, in the interim our models suggest there is a very good chance stocks will struggle to exceed their established highs for the year.”

Belski sees the S&P 500 closing the year at 1,425.

But in his note, he identified 5 upside risks and 9 downside risks to his outlook.  These are the things that could go right or wrong for stocks this year.

We start with what can go right.

Earnings Surprise To The Upside And Provide Double-Digit Growth

Most believe earnings will be positive, but boring. A strong surprise to the upside could hurt defensive portfolios and force a rush back into cyclical growers.

Source: BMO Capital Markets

Middle East Peace And Diplomacy Versus Intervention

The chances for outright diplomacy (especially between Iran and Israel) are greatly disbelieved. As such a surprise accord could fuel a sizable move to the upside.

Source: BMO Captial Markets

China Orchestrates A Clear And Quiet Soft Landing

We believe the key to China will be consistency, not velocity. Therefore, inflation and recession aversion could be as powerful as a Middle East peace accord.

Source: BMO Capital Markets


Fool me once shame on you, fool me twice shame on me. QE3 would likely spark a knee-jerk rally spike in prices, which ultimately may prove to be short lived.

Source: BMO Capital Markets

Business-Friendly Tax Reform And Relief

No one is expecting the current US administration to author business-friendly tax reform that focuses on employment incentives, let alone a simplification of the tax code. Such a move would kick-start a 'giddy-up' for stocks and could ignite the secular bull market.

Source: BMO Capital Markets

And Now Here's What Could Go Wrong...

Monthly Employment Data Turn Negative

Although overall job growth remains slow, it is still positive. However, a move to net negative job growth is not expected and could spook consumers and corporate America alike to 'freeze' again, akin to the summers of 2010 and 2011.

Source: BMO Capital Markets

Low Trading Volume = Lack Of Investor Sponsorship

We believe much of 2012 trading has been an institutional game of 'catch-up' following the severe period of underperformance last year. Any sign of trouble could pull those buyers quickly away form the market and cause a hasty retreat in prices.

Source: BMO Capital Markets

European Sovereign Debt Issues Reignite

Evidence of weakness extending to Spain, Italy, or a surprise country that no one is expecting could force a meaningful correction.

Source: BMO Capital Markets

A Prolonged Period of $100+ Oil

Nondiscretionary consumption will threaten to overtake discretionary purchases, causing the economy and perceptions to turn increasingly defensive and spend-averse.

Source: BMO Capital Markets

Middle East Tensions Become Invasive

A prolonged period of military exercises could disrupt supply channels and cause a super spike in oil that will spark a sharp decline and prolonged buyer strike.

Source: BMO Capital Markets

Earnings Comparisons Turn Net Negative

Similar to employment expectations, the scope of earnings growth will likely have a hard time continuing its stellar upward ascent. However, consecutive quarters of negative earnings could spell broader fundamental issues, something that recent stock gains are not likely pricing in.

Source: BMO Capital Markets


Additional QE3 would only prolong the inevitable - the Fed will eventually need to reduce the size of its balance sheet putting upward pressure on interest rates. In addition, QE3 would only likely occur after a prolonged period of economic weakness (a potential return to the bear market).

Source: BMO Capital Markets

Election Noise

Judging by primaries to date, the 2012 election season is unlikely to be tame. This is good news for media and advertisers, but bad news for an already weakened consumer psyche let alone external perceptions of US leadership in general.

Source: BMO Capital Markets

Another US Debt Downgrade

The 2011 US downgrade was a slap in the face to American strength and consistency. Another downgrade could elongate the path back to American assets.

Source: BMO Capital Markets

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