With government bond yields around the world near multi-year lows, U.S. stocks are in a dither. Should they take a bold leap to new all-time highs, defying mounting expectations of a global economic slowdown? Or should they instead fall to a more sustainable, cruising altitude? My own technical outlooks suggests they could do both: first with a rally of about 9% that fulfills a 3095 target in the S&P 500; then, with a dramatic fall of 20% or more into bear market territory. The Masters of the Universe Universe who manipulate and control the markets will be hard-pressed to decide in the weeks ahead. But it seems increasingly unlikely that they will be able to hold shares aloft for much longer as economic conditions continue to deteriorate.
There is no denying this is happening. Last week brought more troubling developments on several fronts. Orders for durable goods plunged 2.1% in April, weighed down by the Boeing’s deepening scandal. In Japan, investment in machinery was weakening amid concerns over growing trade tensions between the U.S. and China. Modi was reelected as India’s prime minister, portending tighter constraints on U.S. tech companies and on retail giants Amazon and Walmart. And copper, a reliable leading indicator of global growth, was trading 9% below its April peak. China, the biggest player in this market, accounts for fully half of world demand.
Low Unemployment Overrated
Against all of these negatives, economists and the news media would have us believe that America’s low unemployment rate is a major, offsetting positive. I have argued here before that this statistic is vastly overrated and of little value, other than as fodder in presidential election campaigns. The fact remains that 3.6% unemployment will have almost no impact on the mountain of debt that eventually will pull America into a Second Great Depression. Although we shouldn’t expect the markets to discount this eventuality as though the bottom were going to drop out tomorrow, neither should we be surprised if the ten-year old bull market sputters out at or near current levels, a victim of lowered expectations. For its part, The Wall Street Journal never fails to tell us, no matter what the news, that “few expect recession.” It is entirely predictable that we will be six months into a recession before these ossified expectations even begin to budge.