Walker Crips' Morgan: Dangers lurking in US markets

Threat of policy mistake

Despite political chaos and growing geopolitical tensions, the US bull market has continued to storm ahead, largely unscathed by the tumult surrounding it, with the Dow Jones, the S&P 500 and Nasdaq all closing at record highs.

With the market at these levels, the chances of a correction (defined as a retreat of 10% or more) are pretty high. Already we have seen major banks largely beat estimates, but then pull back on concerns about some seasonally soft numbers.  With three major areas of policy - healthcare reform, tax reform and infrastructure spending - all mired in political intrigue in Washington, disappointment here could trigger a correction.  Corrections tend to be quite healthy, a means of removing some of the froth in the market, and making a longer-term bull market more sustainable. Newton'...