Trouble By Summer?

It looks like that renowned leftist rag, BusinessWeek, agrees with Kash:

Yet the market fiesta could be fizzling — and not only because of negative reaction to the Fed’s post-meeting statement, say some Wall Streeters. The central bank had made a nuanced shift in expressing how soon it may be considering a hike in interest rates. While practically no one expects the market to drop dramatically in the next few months, they predict that a mostly steady climb over the past 10 months or so could turn into a less confident, up-and-down pattern by summer, if not earlier.

The latest quarter likely represents a peak in the effect of fiscal and monetary stimulus resulting from Bush Administration tax cuts and rock-bottom interest rates
, says Chuck Hill, First Call’s director of research in Boston. As the Fed signals that it may nudge rates higher sooner than expected, it’s far from clear that the White House can convince Congress to make current temporary tax cuts permanent. “The stimulus has peaked,” Hill notes.

MISSING DRIVERS. Furthermore, as the federal budget deficit rises, pressure could mount to hike interest rates to keep investors interested in U.S. bonds, which are a primary means for Uncle Sam to raise capital. Typically, higher interest rates translate into lower equities prices. “A lot of unresolved things out there could go bump in the middle of the night at any time,” says A.C. Moore, chief investment strategist with Dunvegan Associates in Santa Barbara, Calif. “I really think markets could soften between now and the end of the summer.”