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WARNING: The Market Is Headed for a Crash

Economic data is pointing to quite an ugly summer.

The front-loaded returns of 2013 have been nice, but there is a number of big reasons to consider taking your double-digit gains off the table and hunkering down.

Don’t get me wrong, most buy-and-hold investors aren’t going to be killed. Some long-term investments with big income potential — such as consumer giant Procter & Gamble (NYSE:PG), which just raised its dividend last week, or Coca-Cola (NYSE:KO), which is up against all time high — are worth riding out the storm.

But if you’re a short-term trader looking for big gains this calendar year, there are some brutal reports hinting that a global slowdown is in the works.

Take a look:

China Slump: China is looking increasingly fragile with GDP, manufacturing and retail indicators all pointing down. Follow that up with the more recent miss on PMI — that’s purchasing managers index, a separate measure of manufacturing output — and there are serious concerns about mighty China.

Europe Still Stinks: Germany has long been the lone bright spot in Europe, but weak data from the export leader has renewed investors’ concern. No one can tell whether the continent is fighting through a deep recession or just slogging along the bottom. An absurd plus? Germany might be so bad that the European Central Bank could cut interest rates. But if that’s your bullish motivation — things are so bad a central bank needs to do even more — then let’s not get too gleeful.

Stormy Bellwethers: Whether it’s the poor earnings from FedEx (NYSE:FDX) at the end of March or blue-chip machinery giant Caterpillar (NYSE:CAT) expecting slow growth in 2013, or weak sales at enterprise IT giant Oracle (NASDAQ:ORCL), it hasn’t been a good run for companies that are purportedly indicators of broader economic activity.

Earnings Are Ugly: Once again, we see a smaller number of blue chips beating estimates by a substantive margin. Check out this graphic, and you’ll see that Q4 2012 and Q1 2013 numbers are painfully below both the long-term average and the recent history of earnings surprises. Furthermore, the narrative of top-line misses continues — varied stocks including Visa (NYSE:V), Google (NASDAQ:GOOG), Verizon (NYSE:VZ), Coca-Cola have all missed on the top line, even if they have figured out how to squeeze out more profits via efficiency. Not a good sign.


Investors Are Iffy: Despite the rip-roaring rally, sentiment remains rather subdued — and after the past few weeks, increasingly bearish. Put-call ratios don’t signal a “healthy” market right now, sentiment is decidedly bearish among individual investors and volatility is the order of the day. Bottom line: If investors have one foot out the door, it won’t take much for them to bail altogether.

“Recovery” Is Lackluster: And here we arrive at a crucial point: Unemployment remains persistently high, the U.S. economy is slogging along with only incremental growth at best and we are facing yet another spring downturn in data — and, of course, softness in manufacturing, despite the talk of a rebound in this battered sector. It’s difficult to believe that American equities will move higher when the American economy has so much trouble doing so.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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