US stocks close lower for fourth week, calm before a storm?
Posted on 29 May 2011 with 2 comments from readers
Global stocks drifted lower again last week with US stocks down for a fourth week, the longest losing streak in 15 months. Financial markets digested further disappointing news on the US economy and seemed unsure how to respond to a potential sovereign debt catastrophe looming in Greece.
US GDP grew by an annualized 1.8 per cent in the first quarter, less than expected by economists and down on 3.1 per cent in the final quarter of 2010. Durable goods orders fell sharply and pending home sales crashed to new lows. Jobs data also weakened.
Dollar weakens
This weighed against the US dollar despite the growing concerns about a sovereign debt crisis in the eurozone. Markets find it difficult to price in accidents that may not actually happen, while the US economic data has a factual base.
However, US stock markets are still riding high after their long rally from the depths of March 2009, and the case for the economic recovery underpining this advance is weakening by the day.
This is presently death by a thousand cuts and a rather slow downtrend, and not something more dramatic. But this is not how stock markets typically behave. As Benjamin Graham observed Mr. Market is a manic depressive with violent moodswings.
He might just be enjoying the late spring weather now and waiting for a red flag to drop before making a move but that will surely come, and come when the bears have thrown in the towel.
It is certainly notable that after four weeks of lower stock prices even the perma-bears are reluctant to come out of hibernation. The dollar is weakening because the economic slowdown puts back the day when interest rates will have to rise.
Stock market correction
It can only be a matter of time before the stock market falls for the same reason. For economic growth drives company profits that drive share prices, and it is simply not coming through.
ArabianMoney has long argued, perhaps for too long, that the economic upturn from the stimulus packages after the global financial crisis was too good to be true, and essentially artificial and unsustainable. Now is the point at which we learn who is right on this.
If we are correct then there is a double dip in the economy and financial markets, and potentially a violent sell-off.
2 Comments posted by readers:
From the DT:
In addition, global markets could now be teetering on the brink of another “Lehman moment”, similar to that which struck in the autumn of 2008. If ever there was a time for the right person to be in charge of monitoring the global economy, that time is now.
I am sure that there are hundreds of us who share your view, Peter, and are also puzzled why the expected and significant stock market price fall has not yet happened. Indeed, the commenters on Liam Halligan’s fine article, which you have quoted in your post, seem to all take the same view as you and Halligan.
For me, the most crucial point in your article above is that there is not enough corporate profitability coming through to justify the gamble that the stock market will continue to remain high and not fall.
It is a lonely position sometimes for a prophet of realistic gloom but I can’t see that ArabianMoney can be anything other than right sooner or later.
I know you don’t like comments about war on your website, but I feel that the economic and financial world is going end up in tears.