Taking together all of the countries, one would have a view of the global economy. Understanding the global economy and the shifts among countries, businesses can better allocate capital to the areas of the world that are growing. The U.S. currently is the largest economy in the world, now followed by China. Shifts among countries in their global economic ranking are the result of many criteria, including population growth and fiscal and monetary policies. Knowing which part of the world is growing economically and which part is shrinking is extremely important for businesses.
While corporate earnings continue to come in solid, stocks continue to be sold.
It’s not all the time that stocks follow oil prices, but they certainly have this time around and the selling momentum has gained on deflationary pressures from producer prices to declining expectations for global economic growth.
And the selling is happening to companies that beat consensus with their earnings, like J.B. Hunt Transport Services, Inc. (JBHT), which beat Wall Street estimates for sales and earnings in what was a very solid quarter for the trucking company.
For J.B. Hunt, sentiment just wasn’t strong enough to carry the stock materially higher, even in the face of declining prices for diesel fuel, which is a big bonus for that company’s bottom-line.
The autumn sell-off also flies in the face of reduced pressure on the Federal Reserve to begin raising rates as recent data shows a softening of economic activity on a global basis.
If oil was the catalyst and economic data the accelerator, it’s important to remember where stocks have come from. The equity market has been due for a material correction for a number of quarters. It didn’t even need a reason for a correction only because share prices have come so far over the last several years.
The breakdown in oil prices has been truly spectacular and is now seriously affecting the business case for many energy producers.
And the breakdown isn’t just due to increasing domestic production; it’s a breakdown in sentiment based on declining expectations for the global economy.
So stocks have sold off and they may go further, but a five to 10% price … Read More
Now that the Dow Jones Industrial Average has fallen 1,035 points (six percent) from its mid-September peak, the question investors are asking is “how far will she go?” For small-cap investors, the drama is greater, as the Russell 2000 Index has fallen 12.5% from its July peak.
Since 2009, every market pullback presented investors with an opportunity to get back into stocks at discounted prices. Even some editors here at Lombardi Publishing Corporation see the recent pullback in stocks as an opportunity.
But what happens if it is different this time? How about if stocks just keep falling?
If you have been a long-term follower of my column, you know I have been adamant about an economic slowdown in the global economy.
And let’s face it: the American stock markets have been addicted to the easy money policies of the Federal Reserve, namely money printing and record-low interest rates. But that is all coming to an end now. The Fed will be out of the money printing business soon and it has warned us on several occasions that interest rates will need to rise.
The International Monetary Fund (IMF) is now (or should I say, is finally) warning about an economic slowdown in the global economy. In its most recent global growth forecast, the IMF said, “With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialize or fall short of expectation.” The IMF also said the global economy may never see the kind of expansion it experienced prior to the financial crisis. (Source: “IMF says economic … Read More
Since May, when it was near an all-time low, the U.S. dollar has rallied. Compared to other major currencies of the world, the greenback is up five percent since July, as the chart below illustrates.
The question: should investors get into this U.S. dollar rally?
Dear reader, the U.S. dollar is not moving higher because the fundamentals of the U.S. economy are getting better. It’s moving higher because other parts of the global economy are doing worse than the U.S.
The eurozone economy is so weak that the European Central Bank has lowered interest rates again, pushing the value of the euro lower. In the United Kingdom, Scotland is looking for independence. The crisis between Russia and Ukraine continues without resolution. New troubles are brewing in the Middle East. China reported yesterday it would start pumping money into its largest banks.
Chart courtesy of www.StockCharts.com
Right now, with the majority of major world central banks either printing more of their paper money or bringing interest rates even lower, the U.S. is the best of the worst.
But I believe the rally in the U.S. dollar will be short-lived.
Central banks are trying to move away from the U.S. dollar as their reserve currency. At one point, trade in the global economy was dominated by the U.S. dollar. This is changing, slowly but surely.
Consider just one of many recent examples; the Chinese and Argentinian central banks will be doing an $11.0-billion currency swap operation. This will allow Argentina to increase its reserves and pay for Chinese imports in yuan—the deal was signed in July. (Source: Reuters, September 7, 2014.)
Putting … Read More
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