Kass: A Critical Juncture

Before the year began, I was hopeful that this would be different (i.e., that policy would be less uncertain), but as we move ever closer to the November elections, any movement away from the currently divided and divisive behavior is increasingly unlikely. The behavior and inaction of our leaders in Washington, D.C., has been a downer for business and consumer confidence, and now the profit picture is eroding (posthaste) in the face of that understandable deterioration in confidence.

Consensus forecasts (implicit in $100-plus-per-share 2012 S&P 500 earnings) are for about 5% year-over-year growth in profits in second quarter 2012 and for about 6% growth in this year's second half.

As organic sales gains slow coincident with a deceleration in worldwide economic growth, these projections, based on the early warning signs -- namely, from the likes of Nike (NKE) , Procter & Gamble (PG) , Caterpillar (CAT) , Ford (F) , General Motors (GM) and others -- and continued policy inaction and uncertainty, are now in jeopardy.

Despite trillions of dollars in global easing, the ISMs and other pervasive reams of economic data signal that growth is slowing relative to expectations.

Yesterday's June retail sales were generally soft relative to expectations, with the high end notable in its weakness.

Tech, which is particularly exposed to a European slowdown and the strength in the U.S. dollar, has hit the skids, with unit growth expectations for personal computers, smartphones, chips and disk drives being revised lower. For example, both Seagate Technology (STX) and Informatica (INFA) reported poor results and lowered guidance after the close of trading last night. Informatica, a data integration company exposed to the cloud, was particularly disappointing, and the shares tumbled by 26% in after-hours trading.

I am growing increasingly concerned that not only are consensus 2012 profits in jeopardy but that next year's outlook for earnings could be revised lower as well.

Many who worship at the altar of price momentum are growing more bullish (along with somewhat higher stock prices), and we are at a critical juncture in the U.S. stock market.