Stocks: The risks are rising

Is it time for a correction?
Is it time for a correction?

Billionaire Sam Zell is known as the "grave dancer" for buying distressed properties on the cheap.

That's how he made his billions. So when Zell is raising alarm bells about the stock market, it's hard to ignore him.

"There's a significant and growing disparity between the stock market and the economy," he stated on CNBC. "The markets do not reflect the risks we see out there."

Zell is only the latest expert to point out risks in the current market. Noble prize-winning economist Robert Schiller has been shouting for months that stocks look overvalued. No, they're not at dot-com bubble levels, but they are above average.

Related: Bad news: Stocks likely to fall further

The current bull market has been going on for over six years. That's a good bit beyond the typical market upswing that lasts between 3.5 to 4 years. The U.S. market hasn't even had a correction -- where a market falls 10% or more -- since the summer of 2011.

Despite the historical precedent, optimists point to the improving U.S. economy. As growth and hiring picks up, surely that will keep powering stocks higher.

But the problem now is that the economy that looked so strong at the end of 2014 -- the best year of job growth since 1999 -- is showing cracks. The question is how deep do they run?

Related: The U.S. economy is showing cracks

For weeks, stocks have wobbled as investors weighed every word coming from the Federal Reserve for signs of when the central bank would start raising interest rates. Would it be June? Now the chatter is increasingly that the Fed will "go slow," delaying a rate hike until September or later.

But what this really means is the U.S. economy is looking sluggish and the Fed is afraid of acting too soon.

Related: Janet Yellen: U.S. economy not good enough yet

Here are three big warning signs:

1. A slowing economy: Pretty much every economist has cut growth forecasts for the first quarter of 2015. It's not like anyone is forecasting the kind of negative growth the U.S. economy saw last year, thanks to the Polar Vortex. Still, this was supposed to be the year when growth really took off.

Macroeconomic Advisors started the year predicting 2.6% GDP growth for the first quarter. It's revised that number steadily down to 0.9%.

Beyond GDP growth, many other economic indicators have disappointed in recent weeks. Manufacturing and spending -- both by business and consumers -- have come in below expectations. The housing market also isn't picking up any steam.

"Not all sectors of the economy are doing well," Fed chair Janet Yellen said Friday.

risks are rising

The one continued bright spot is hiring. America's economy continues to add a very healthy amount of jobs every month. The latest read comes out Friday with CNNMoney's survey of economists predicting 244,000 jobs added in March.

Related: What Americans are doing with their $750 in gas savings

2. Show me the earnings: The strong U.S. dollar and a stalling economy are hurting corporate profits. Since 2006, this is the smallest number of companies that has issued "positive guidance" about first quarter earnings, according to FactSet. That's not a lot of optimism.

As CNNMoney's Paul LaMonica put it recently: "Corporate earnings for the first quarter are probably going to stink like a giant pile of dirty laundry in a teenager's bedroom."

To put it another way, analysts now predict that corporate profits will fall in the first quarter of 2015 for the first time since 2012.

No wonder the stock market is starting to get a reality check. The Dow is now negative for the year, and the S&P 500 is struggling to break even.

Related: Americans just aren't spending

3. Where's the demand? For most investors the big picture question is whether American and global consumers and businesses will start spending. There have been a lot of headlines about Europe's struggles and China's slowdown. But America was supposed to carry things this time.

As Zell put it Wednesday morning: "Almost every company is turning in numbers that are less than expected. Revenue particularly for multinationals is being hurt by currency devaluations around the world."

At the moment, spending isn't coming through. According to the latest data, American consumers actually have more cash in their wallets, but they aren't opting to go out and buy much with it. Instead, they are saving. Similarly, companies are sitting on record levels of cash.

That's not ideal. In a new blog post, former Treasury Secretary Larry Summers argues all this saving could lead to a prolonged period of economic stagnation.

It's possible this is all just a winter blip. As the weather warms up and hiring continues, the economy and corporate profits could get hotter again too. Long-term investors probably shouldn't run for the exits, but don't be surprised if that 10% correction we're overdue for shows up soon.

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