The US stock market may finally be awakening to the threat of global recession; perhaps this time China’s slowdown is too evident to ignore. Commodities have collapsed 68% since their peak in 2011 and cannot find a bottom because of China’s slowing economy- the Shanghai exchange is down 67% since June.
Some have blindly rationalized that Asia’s troubles would not affect Wall Street because of the US’s low unemployment and improving housing sector. HOWEVER, for US companies exporting to China, the Peking duck is coming home to roost…and the effect is far reaching. From the Colonel’s KFC (YUM Brands) down 16%, to high tech gadget maker Apple down 20%, to heavy equipment manufacturer Caterpillar down 35%.
The S&P500 is breaking long term support at the 24 month moving average (see below chart). The downturn is widespread- this week Facebook & Microsoft down 9%, Walmart down 8%, Amazon & Disney down 7%, and Google down 6%. The euphoria has even worn off high flying IPOs- Twitter is down 82%, Shake Shack down 48%, and GoPro down 56%…not surprisingly China’s premier IPO- Alibaba is down 43%.
Yet, with all the above mentioned gloom…the S&P500 is only down 4.3% year-to-date and only off 7.5% from its all-time high. It has traded in a tight range that until this week hadn’t slipped more than 5%. Although I’d love to see a 20% pullback buying opportunity, I also wouldn’t be surprised to see another shallow recovery. [Don’t discount the power of an accommodating Federal Reserve.]
As always, invest with caution.
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