Is Wall Street's Rally at Risk?

Henry Truc  |

Stocks are on pace to close the week lower for the first time in 2012. With two trading days left for this month, could Wall Street be in jeopardy of losing its year-to-date gains? Given that the January Barometer could prove especially true for this presidential election year, the significance of whether or not the market can hold its gains adds a bit more weight for investors.

Year-to-date, the S&P 500 is up 4.84 percent, with the Dow Jones Industrial Average is up 4.23 percent. The NASDAQ has been leading the way, up a healthy 5 percent so far this year. However, with the U.S. Department of Commerce announcing that fourth quarter GDP grew at a disappointing 2.8 percent, missing economists projections of 3 percent, the market could be heading lower.

 

Earnings Disappoint Low Expectations

Major blue chips are taking it on the chin thus far with companies like Ford (F), Chevron (CVX), and Procter & Gamble (PG) disappointing. The results may even be more alarming considering that analyst expectations were already considered very low for the fourth quarter.

Considering that the first month has already seen major bankruptcies like Eastman Kodak (EK), Hostess and Ener1 (HEVV)--and Fitch Ratings expects the number of major companies filing for chapter 11 to double in 2012--investors may be holding on tight to their capital for the next shoe to drop before entering bullishly into the market.

Europe's Doom and Gloom

The International Monetary Fund cut its growth projections for the global economy in 2012 and 2013 this week, with much of the focus falling on Europe's ongoing financial crisis. While Greece is still being pressed to adopt more aggressive reforms or risk defaulting, the IMF has already called for EU leaders to create stronger "firewalls" to protect surrounding economies that could be targeted next, such as Italy and Spain.

Gold Prices Back on the Rise

After taking a tumble in the closing months of last year, it seems that gold bugs are back in the driver seat. Price of gold, along with gold ETFs like the SPDR Gold Trust (GLD), iShares Gold Trust (IAU), and Market Vectors Gold Miners ETF (GDX) have surged over 10 percent year-to-date.

Silver has been no slouch either. The iShares Silver Trust (SLV) and the iShares Physical Silver Trust (SIVR) have jumped almost 22 percent so far this year. With the Federal Reserve stating that it plans to keep rates low until at least mid-2014, and investors anticipating higher inflation in any EU rescue scenario, it's no wonder why commodities are retaking the center stage.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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