InvestorPlace's Reeves: Stocks 'Ripe for a Correction'

Tuesday, 19 Nov 2013 01:09 PM

By Dan Weil

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Major stock indexes are perched near record highs, but the market is vulnerable, says Jeff Reeves, editor of InvestorPlace.com.

"For many reasons, the market appears ripe for a correction," he writes in a commentary for MarketWatch. "Not a crash, . . . just a 10 to 15 percent dip in the broader indexes to allow reality to catch up with Wall Street."

Reeves lists five reasons why he expects such a correction in the next six months.

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First, Main Street has turned bullish, he says. "Once people start buying stocks simply because stocks are going up, that sounds to me like the very definition of a bubble."

Second, the market is continually reaching new highs — 38 so far this year for the Dow Jones Industrial Average — without the accompaniment of strong growth, Reeves notes.

"It's worth noting that eclipses the 34 record highs set in the year of 2007, right before the bottom fell out," he explains.

Third, investors have lost much of their skepticism, he argues. "It's important to understand the value of skepticism amid big rallies to keep investors honest."

Fourth, price-earnings multiples are "insane," Reeves writes. That's true even for "the sleepy stocks that do not typically trade for big multiples."

Fifth, initial public offerings (IPOs) are out of control, he contends. "IPOs rushing to market just because it's a good IPO market is a serious sign that markets aren't acting rationally anymore."

Others too see room for a market correction. "We've moved pretty far pretty fast," Kevin Caron, a market strategist at Stifel Nicolaus, tells Bloomberg. "Obviously there's a potential for a little bit of a pullback."

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