Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18
Euro Vulnerable as Slowing Growth Reveals Underlying Issues - 9th Oct 18
Construction Companies to Watch For in 2019 - 9th Oct 18
ECB Meeting Minutes and US Inflation Data in Focus - 9th Oct 18
Interest Rate Shock-Time to Find Out Who has been Swimming Naked - 9th Oct 18
Unintended Consequences of Expanding Sheffield's Best Ranking State Secondary Schools - 9th Oct 18
Crude Oil Price Trend Forecast 2018 Update - 9th Oct 18
Inflation Is Starting To Heat Up - 8th Oct 18
Stock Market Seasonal Influence at Work - 8th Oct 18
Barrick Randgold Deal Breathes New Life into Gold - 8th Oct 18
Stock Market Sell Off, Dollar Rally Expected, Now What? - 8th Oct 18
The Chartology of Gold and Silver - 8th Oct 18
The Income for Life Playbook - 8th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Study: Slowing Global Economic Growth IS NOT Bearish for U.S. Stocks

Stock-Markets / Stock Markets 2018 May 24, 2018 - 03:39 PM GMT

By: Troy_Bombardia

Stock-Markets

2017 was the year of synchronized global economic growth. Almost all major economies around the world saw an upswing in economic growth. As you probably already know, 2018 is turning out to be a different story. Global synchronized economic growth is over for now.

  1. The U.S. economy continues to grow at a healthy, unabated pace.
  2. Other developed and developing economies are seeing a small decrease in economic growth.

You can see the slowdown in ex-U.S. economies through other data series as well.

The Ifo Business Climate Index is Germany’s best economic indicator. It has slowed down throughout 2018.

But when you put things into perspective, you can see that this isn’t a massive economic slowdown for Europe’s economic engine.

The Eurozone’s Economic Sentiment Index (ESI) is Europe’s best economic indicator. It has also slowed down year-to-date in 2018.

But once again, the slowdown isn’t significant when you put things into perspective.

 

European and Japanese PMI are deteriorating a little.

Eurozone’s Economic Surprise Index continues to fall. This is about as negative as it gets.

So here are the 2 main points in this study:

  1. The current global economic slowdown is small compared to previous global economic downturns. Perspective is everything.
  2. The U.S. stock market doesn’t care about global economic downturns. The U.S. stock market cares about U.S. economic downturns.

The U.S. stock market and U.S. economy move in the same direction in the medium-long term. The U.S. stock market usually ignores economic problems in other countries. This means that other countries’ economies can deteriorate while the U.S. stock market trends higher.

*The U.S. economy is frequently impervious to economic deterioration in other countries.

This is because the U.S. has a relatively isolated economy, unlike other countries (e.g. China, Germany, Japan). The following chart demonstrates that only a small portion of U.S. GDP is accounted for by exports.

Here are historical cases in which major foreign economies deteriorated but the U.S. stock market still trended higher.

Europe’s economy deteriorated from early-2011 to late-2012

Europe’s economy deteriorated significantly from early-2011 to late-2012, as shown through Europe’s Economic Sentiment Indicator. The U.S. stock market trended higher during this time because the U.S. economy continued to grow, even though there were 2 “significant corrections” that the Medium-Long Term Model was able to predict.

China’s economy deteriorated from 2010 to early 2016

China’s economy deteriorated significantly from 2010 to early-2016, with the bulk of this decline occurring from 2010 – 2012. The U.S. stock market (S&P 500) trended higher throughout China’s economic slowdown.

 

Emerging markets slowed down from mid-2014 to early-2016

Emerging markets – particularly countries that relied on commodities exports – saw significant economic deterioration from mid-2014 to early-2016 as oil prices collapsed.

The collapse in oil caused many EM economies to collapse as well. The U.S. stock market mostly swung sideways with high volatility (i.e. a “significant correction”). The U.S. stock market did not crater.

Germany’s economy from 2004-2005

Germany’s economy deteriorated from late-2014 to mid-2005, as shown through the IFO Business Climate Index.

The U.S. stock market swung sideways, with a 6%+ “small correction” along the way.

Japan’s economy cratered from late-1990 to late-1993

Japan’s annual GDP growth rate cratered from late-1990 to late-1993.

The U.S. stock market trended higher during this period.

Bottom line

As you can see, deteriorating foreign economies usually cause increased U.S. stock market volatility. The worse the foreign economic deterioration becomes, the more volatility there is in the U.S. stock market. But deteriorating foreign economies isn’t a medium-long term bearish factor for the U.S. stock market. The U.S. stock market doesn’t make a massive decline when foreign economies are deteriorating. The U.S. stock market only makes a massive decline when the U.S. economy deteriorates significantly.

Once again, remember that the current deterioration in foreign economies is relatively minor. Perspective matters.

U.S. stock market investors and traders should focus on the U.S. economy instead of foreign economies when predicting the U.S. stock market’s medium-long term direction. The U.S. economy continues to grow at a healthy pace.

Read Stocks on May 24, 2018: outlook

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules