Wall of Worry Grows over Rally

by The Investment U Research Team

As doubt grows about the sustainability of the current rally and the strength in the financials, the possibility of another bottom increases. Our colleagues are fond of saying, as the proverbial “wall of worry” grows, the longer it remains, the better its chances of being right.

And we seem to only be adding support to this theory.

Yesterday we discussed how the Bank Stress Tests could be the only thing big enough to cause another market rout, but we keep stumbling upon newer and even scarier drivers of a changeover.

As the banks rush to get rid of their “scarlet letters,” namely T.A.R.P, they may be getting rid of one shackle and adding another. Getting rid of government funds may not be the smartest thing.

The potential for the “other shoe to drop.” And by shoe we mean the crashing of the commercial real estate markets. It’s not as far-fetched as it sounds, and if the bankruptcy filing from General Growth Properties (NYSE: GGP) is any indication of the direction things could take, then we could have some serious problems on our hands.

If you look at the current numbers of this rally, we haven’t reached or come close to breaking out of the highs that the S&P (.INX) reached in January. No doubt that we’re not going to see 1500 or even 1200 any time soon in the index, but failure to push back to 1000 can’t be a good sign.

Companies mentioned in this article: GGP.

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