The markets have rallied since the New Year, but skeptics are quick to point out that there's no solid basis for the growth.
Comstock Partners wrote, "In our view, even the mild recovery seen to date is unsustainable. When we look at the numbers, it is difficult to tell where additional growth will come from."
Indeed, he goes on to suggest that, historically, when debt/GDP ratios exceed 90% the following period was marked by "slow growth and frequent recessions."
To add fuel to the fire, he goes on to point out the downside of current trends in higher consumer spending -- "this was accomplished largely by reducing the household savings rate from 5% to 3.5%, the lowest rate since the economy peaked in 2007" -- and the housing market: "housing is still in the doldrums with additional home price decreases still likely as a result of the backlog of foreclosures."
"Summing up, we see lower consumer spending growth, declining government spending at all levels, less exports and lower capital spending. That pretty much accounts for the entire GDP ... Under this scenario the current market rally does not have far to go and the downside risks are high."
Corporate earnings estimates are already being slashed, and although earnings season has just begun, the number of disappointments has outweighed the upsides. Investors who are riding the rally may need to reflect on its sustainability.
And if what Comstock Partners reports is true, then U.S. markets, and perhaps global markets, can expect high risk ahead -- more volatility and recessions intermixed with periods of calm seas and strong rallies. It can be a lot for an investor to account for.
Business section: Investing ideas
Worried about high-risk investments? To help you protect your portfolio against the volatility, we collected data on low risk stocks -- stocks that have had the smallest intraday price fluctuations over the last month.
In addition, all of these stocks are in rally mode -- trading above the 20-day, 50-day, and 200-day moving averages.
To refine the list, we collected data on institutional transactions and identified the names that have seen significant inflows during the current quarter.
And to further refine the list, we collected data on short-seller trends and identified the names that have seen a significant decrease in shares shorted during the current month (i.e., short-sellers think the upside of these stocks outweighs the downside)
Sophisticated investors, like hedge fund managers and short-sellers, think these low-risk stocks are going higher -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)
1. Patni Computer Systems Limited
2. Dollar Thrifty Automotive Group
4. Digital Realty Trust
5. Intercontinental Hotels Group
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance, institutional data sourced from Fidelity. All other data sourced from Finviz
The Motley Fool owns shares of Ecolab. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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