David Sterman

A bold start, a mid-year slump, and a superb finish... That was how the market played out in each of the past two years. Could the current year be shaping up to bring more of the same?

Consider these numbers...

The market gyrations in 2010 and 2011 were caused by the same factors. Early in each year, the economy began to look a lot healthier, though by late spring, the economy began to steadily weaken. Investors eventually got spooked, and the sell-off accelerated into the summer until investors realized that stocks had moved deep into bargain territory -- despite any economic concerns.

Unfortunately, a similar economic pattern appears to be setting up in 2012.

Roughly two months ago, I cited three distinct economic indicators that can give a read into the changing economy. The subsequent data points are surely sobering.

In mid-April, the National Federation of Independent Business (NFIB) noted that small business optimism dropped for the first time in six months. The NFIB pollsters noted that a similar drop was seen a year ago, which presaged further weakness to come -- along with a sharp stock market slump.

The Chicago Fed National Activity Index (CFNAI) has also weakened. The index had read a healthy +0.65 in December, 2011, but slipped to +0.38 in January and +0.07 in February, before falling to -0.29 in March. It ultimately fell to -0.70 this past summer, so the index bears close scrutiny in coming months. (Data for April will be released in late May.)

David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com

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