Jim Cramer's Stock Market Warning Is Spot On – So, Sell Something

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Cramer warns of Wall Street overoptimism, and the warning is sound. Stock market investors exhibited the same positive reaction individuals and businesses did when reopenings began. This time, the chant, “Good riddance, coronavirus!” came as COVID-fighter Biden’s election win and Pfizer’s PFE 90% vaccine announcement signaled happy days ahead.

The problem is, this optimistic attitude depends on selective positivity. Pushed aside are the continuing large uncertainties (risks), not to mention the new, record-setting COVID surge’s adverse effects.

So, this stock market’s optimism-driven runup looks like an opportunity to sell.

Disclosure: Author holds 100% in cash reserves

How can you argue with such a dramatic stock market rise?

By focusing on fundamentals…

First, the Biden-Pfizer news is only indicative of good things to come. Defeating the pandemic and recreating economic stability and growth remain longer-term, hopeful goals – not shorter-term, assured forecasts.

Second, a further deterioration of fundamentals remains a serious risk. Beyond the coronavirus spread we are seeing, there are many negative issues – that is, uncertainties that are real risks. Here are a dozen:

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  1. The end of some coronavirus shutdown/unemployment protections and benefits
  2. The end of the summer season spending and employment
  3. The Fed’s inability to produce real economic improvement
  4. The flu season joins the coronavirus pandemic
  5. The continuing malaise among banks
  6. Companies extending work-from-home procedures to summer 2021
  7. Companies discussing survival actions by year-end
  8. Financial system stress – e.g., commercial mortgage loan credit quality and pricing
  9. Technology stocks’ outsized index weightings from performance excitement beyond extraordinary growth opportunities
  10. Enormous global public debt
  11. Oil price weakness – again!
  12. Widespread overleveraged organizations and funds that low interest rates cannot cure or protect

Third, unemployment remains in recession territory. The unemployment levels remain high, with over six million now in the longer-term categories. All the numbers are significantly above pre-coronavirus normality. (See “Unemployment’s Clouds Threaten More Recession” for more)

Fourth, the stock market failed to penetrate its ceiling again. That makes three times the market has bumped its head, setting up another test on the downside.

The bottom line: Don’t depend on Wall Street optimism to drive the stock market up

Somebody sold stocks this week, undermining the market’s attempt to establish new high ground. This repeat failure sets up the prospect of another selloff. So, it looks like a good time to sell “early.”