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Posted on 26 September 2012 | 6,271 views

The Coming 25% Stock Market Correction

Renewed jitters over Europe, growing fears about China and the U.S’s precarious fiscal situation all bode poorly for the recent stock rally, which could correct as much as 25 percent in the coming months.

Market participants often refer to unanticipated occurrences that rock the global economy as “Black Swans” and a powerful macroeconomic headwind is building momentum, that swan has problems that we already know are out there but they’re all building in a strong combination right now.

With the Euro Zone’s debt crisis reaching a crescendo and the U.S. Election outcome still uncertain, we’ve got plenty of issues to worry about.

Since June, equity markets have surged, defying the predictions of many skeptics who argued that looming difficulties in the world’s economy would soon put a damper on the Summer Rally of 2012.

Stocks have rallied largely based on bond-buying expectations from the Federal Reserve, rather than healthy factors underpinning the global economy. The Fed’s unfurling of more quantitative easing was mostly a non-event that had already been factored into stock prices.

Many traders have already paid in advance for this classic “buy the rumor, sell the news” event and as how deep the major stock benchmarks could fall — the Dow Jones Industrial Average could possibly break 10,000 with the S&P 500 Index revisiting its lows from last fall. That would put the S&P 500 trading around 1,100 points.

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