Pinnacle Activity Ticker
Here We Go Again Already?
What is it about the economic recovery so far that allows good news to last for only six months at a time before fears rise again and the economy needs another adrenaline fix from the Fed? The pattern has been clearly reflected in the stock market, which saw its historical pattern of making its gains in the winter months and suffering corrections in the summer months even more pronounced in 2010 and 2011.
And here we go again already?
Just when it seemed we could relax, the U.S. economic recovery surprising with its strength, the Greek debt crisis kicked into the bushes, and most global stock markets in impressive six-month rallies, here comes another set of dark clouds and rumbles of thunder.
Global economic reports were unsettling from all directions this week.
The closely watched 17-nation eurozone PMI index, which measures both manufacturing and service sector strength, dropped to 48.7 in March. That was the eurozone PMI’s third straight monthly reading beneath 50, which is the dividing line between expansion and recessionary contraction, indicating Europe is sinking deeper into recession..
The similar HSBC PMI index for China, the world’s second largest economy, shocked markets, coming in at 48.1, its fifth straight monthly reading beneath 50.
Worries also rose in the Latin America region on warnings from the World Bank that “more than other regions, commodity exporting countries in Latin America [like Brazil and Argentina] would be vulnerable to any decline in commodity prices that might accompany a credit event in Europe.”
At the same time, a research report on Latin America from JP Morgan noted the importance of China, a major buyer of commodities and raw materials from the region, saying, “China’s influence in driving Latin America’s growth has increased sharply since 2008, so whatever happens in China’s economy matters for Latin America even more.”
Asia, Europe, Latin America. They’re so far away. Should U.S. investors care?
Absolutely. Global economies have always tended to move in tandem, into and out of good times and bad times pretty much simultaneously. That tendency has become more pronounced over the last 20 years as countries around the world have become even more dependent on exporting their raw materials and manufactured goods to each other.
So, if other major global economies are experiencing slowing economic growth, some even sliding back into recessions, how reasonable is it to expect the U.S. to escape a similar fate?
Already we may be seeing early warning signs in this week’s U.S. economic reports.
Economists were looking for reports from the U.S. housing industry, the first since a month ago, to confirm the economic recovery is spreading into that important sector.
Unfortunately, the reports were disappointing. They were that new housing starts unexpectedly fell 1.1% last month, existing home sales fell 0.9%, the inventory of unsold homes jumped 4.3%, and new home sales fell 1.6% (compared to the consensus forecast that they would rise 3.8%).
The U.S. stock market stumbled some in reaction to the arrival of global dark clouds, while elsewhere, markets in France and Hong Kong plunged more than 3% for the week, markets in Brazil, China, and Germany more than 2%.
Meanwhile, areas often perceived as safe havens, gold and U.S. treasury bonds, which had fallen to multi-week lows, bounced back some as money flowed back into them.
One week is not a reason for concern.
But this week’s darkening economic clouds just as another six-month cycle from last October’s low rolls around, and with 1st quarter earnings reports just two weeks away, are reasons for investors to remain cautious and alert.