Market Outlook: Indicators Say Mini-Crash Could Continue

News from Europe took a turn for the worse last week, and the stock market responded by declining. While the sell-off started after traders saw the election results, this move was probably a reaction to the fact that the global economy is weakening and there is no quick fix to the problems. Market prices may need to correct for slower growth, and we may have seen the start of a significant downtrend.

Traders React to a Worsening Economic Situation

This week, traders learned:


-- The Congressional Budget Office (CBO) believes that U.S. GDP will decline 0.5% next year and unemployment could rise to 9.1% if the fiscal cliff is not avoided. If the cliff is avoided, CBO forecasts growth of 1.7%. When the best case is slow growth and the worst case is a recession, traders have little to cheer.

-- Germany's Economy Ministry warned of a "noticeably weaker economic dynamic." The Organization for Economic Cooperation and Development had previously forecast a recession for Germany starting this year.

-- France is already in a recession, according to the country's central bank. This threatens to make Germany's potential recession deeper since France is a major consumer of German exports.

-- Greece might run out of money to pay its bills within a week and is in a depression with its economy contracting about 25% during the past five years. (more)