Stocks rally not sustainable: Prudential

Want the recent rally in stocks to last? Don’t count on it, says John Praveen of Prudential Financial. The Dow Jones industrial average is up over 20 percent since September, and has gained 7 percent since the start of the year. But Praveen sees too many headwinds for the boom to continue.

The pace of gains thus far in 2012 is likely to be unsustainable and volatility is likely to remain high as several downside risks remain. These include:

1) Greek risks: The second Greek bailout and debt restructuring deal are likely to be a short-term reprieve, with still high Greek debt/GDP burden and Greek elections due in April.  A negative election outcome with no clear mandate and/or a new government reneging on its commitments (to reduce debt) could potentially roil markets.

2) Other euro zone risks: Further debt rating downgrades of euro zone countries and banks; recession in euro zone and the continued negative feedback loop between the high debt burden and economies in recession.

3) Oil price and geopolitical risks: Continued surge in oil prices with simmering Middle East tensions and risk of short-circuiting the global recovery.

Has Bernanke got it right?

“Don’t fight the Fed” is an ingrained financial markets axiom and hence, when Federal Reserve Chairman Ben Bernanke speaks, investors, traders, analysts, economists and fund managers pay attention.

Bernanke testified in Congress on Tuesday and one key message was that the recession should end this year.

German fund managers Mack & Weise (M&W), however, were not impressed.

“That Fed Chairman Ben Bernanke once again takes a fundamentally positive view of the U.S. economy should rather be understood as a warning. Not … a single one of Bernanke’s forecasts in recent years has proven right,” M&W said in a note to investors.