US jobless claims came in surprisingly positive, helping to buoy risk appetite today ...

So let’s keep it simple and look at a list of items that might mark an end to the current trend of risk-taking we’ve been witnessing.

1. QE2 Let-Down: expectations on its size, and certainly its effectiveness, have been blown severely out of proportion. Signs point to any additional QE as being largely ineffective at achieving the stated goal of stimulating growth and job creation.
2. Fiscal Austerity: as the make-up of Congress changes next month, investor sentiment on fiscal support will change with it; with fiscal contributions likely receding, the private sector will be left with more of the weight to carry, exposing the continued drag of consumer deleveraging and corporate uncertainty.
3. Earnings Fluff: Earnings season has very much been a buoy for stocks over 2010, consistently beating expectations. But whether it is from a) setting a low bar, b) capital reserve allocation rules for banks, c) cost cutting and productivity increases, or d) any other items on this list, something will likely bring the “better-than-expected” earnings trend to a disappointing halt, sooner rather than later.
4. Real Estate: with most everything about this market still in shambles, the bright spots will be highly welcomed but few and far between. The continued decline in prices and sales may not be as steep as recent years, but it will be steeper than what those betting on housing market stabilization plan to see. The pain will persist.
5. Eurozone: attention has turned away from the Eurozone in the second half of the year. But all the while credit spreads have been blowing out and problems among the indebted/deficit countries are lingering (e.g. budget struggles in Portugal and Ireland, Greece battling a nasty duo of fiscal austerity and negative growth.)
6. A China Re-Think: this may be more of a long-run thing that rears its head here and there before eventually dominating headlines; but questioning the viability of China’s growth model (little changed since the global recession prompted calls for rebalancing) seems likely in the event investors start looking for reasons why the markets are falling. This re-think on China’s ability to take control as global growth leader could add plenty of fuel to the “risk-off” fire.
7. Deflation: this may seem impossible considering the abundance of overwhelmingly confident inflation expectations, but deflation should not be written off, especially if QE2 expectations are as overblown as we think they are and if sentiment changes as to how much support policy-makers in Washington will offer the economy.

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