The major stock indexes have been steadily declining since September 14, 2012 when the S&P 500 Index traded as high as $1474.51. This morning, the S&P 500 Index is trading around the 1374.00 area. This is now a 100.0 point decline since the most recent stock market high. It seems that the major stock indexes are coming under selling pressure every day. Almost every intra-day bounce is being met with sellers by the closing bell. Is this recent decline telling us that the Federal Reserve and the European Central bank is running out of bullets to inflate the stock market?
Many market leading stocks such as Apple Inc (NASDAQ:AAPL), Bidu Inc (NYSE:BIDU), Exxon Mobil Corp (NYSE:XOM), Amazon.com Inc (NASDAQ:AMZN) , and others have all faced broad based selling pressure recently. When leading stocks decline it is a definite sign of institutional distribution in the near term. A case can be made that the major stock indexes were only trading higher because of all the central bank intervention that was taking place throughout the summer. Once the institutional stock market investors realized that the central banks were actually doing all they could they began to sell stocks.
The elections were also another major event for the stock markets. Many investors are now unloading stocks ahead of the U.S. fiscal cliff. Investors are expecting the Bush tax cuts to expire by the end of the year. President Obama has been pretty clear that he will be raising taxes on people that earn over $250,000 a year. Unfortunately, it is the people that make over $250,000 that pay the bulk of the taxes in the United States already. If this income group stops spending it will cause a slowdown in the economy. This is something that the stock market could be forecasting. Remember, the stock market is usually six months ahead of the actual economy.
Gridlock is still expected to occur in Washington. The House of Representatives is still controlled by the Republicans, meanwhile, the Senate is controlled by Democrats. In the past, gridlock has been good for the stock market, however, this time around that may not be the case. After all, the U.S. national debt is now over $16 trillion. Approximately 42 million people in the United States are on some form of government assistance. Government spending only seems to grow and expand, meanwhile unemployment remains high at 7.9 percent according to the U.S. Labor Department. At some point, the politicians have to make some real decisions regarding spending, borrowing, wars, and entitlements. All of these factors must be on the table if the economy is going to ever truly recover. Until that time, the stock markets will be drowning in quicksand regardless of how much money the central banks print.