Analysts at Citigroup appear to be throwing in the towel after suggesting the global economy was caught in a “death spiral” that adds to my recent thesis that we could be in for a much bigger stock market crash. (Source: “Citi: World economy trapped in ‘death spiral,” Yahoo! Finance, February 5, 2016.)
I don’t think we are in for the same kind of selling like we saw in 1987, 2000, or 2008, but I side with the bears and believe the stock market has yet to flush out the selling.
Look, there is no doubt the stock market is trading with a bear market mentality, given the selling capitulation and random selling for really no valid reason.
Even when companies report great results, we see a small bounce. But then selling has usually followed.
Nothing is staying up. This is the trading action of a bear market, just in case you are too young to remember.
Now, the world is not going to end.
The red flags are obvious so don’t be surprised to see deeper losses.
Signs Point to Uneasy Times
Oil, despite the recent bounce, is dead. Speculation of a pending deal to cut production by OPEC (the Organization of the Petroleum Exporting Countries) and Russia appears to be fading as the Kremlin is producing record oil. The country is battling global sanctions and the Russian ruble is getting crushed, so I just don’t see why Mr. Putin would want to ease the hurt caused by low oil prices.
Of course, Russia could change its view if $30.00 oil prices continue to linger. For now, I would be selling energy into strength as the rallies are not supported by fundamentals, like an increasing number of investors and declining demand.
Look at the uneasy link between oil prices and the S&P 500 reflected on the chart below.
Chart courtesy of www.StockCharts.com
Oil pundit T. Boone Pickens appears to be one of the few oil bulls remaining. In an interview on CNBC, the Texan was pretty confident WTI oil would trade at $52.00 a barrel by year-end. While the prediction was somewhat intriguing, Pickens also disclosed that he currently has no positions in oil, which kind of makes me wonder about his call.
Citi blames the so-called death spiral on weak oil prices, recessions, and bear markets.
European stocks are in a bear stock market; so are Brazilian and Chinese stocks.
Small-caps are getting crushed here with no support emerging.
The S&P 500 is not technically in a bear market, but more than 50% of its listings are.
And when the Bank of Japan decided to pursue negative interest rates for deposits, you knew the country was hurting despite spending trillions to pump up the economy.
The evidence is out there that things could get far worse before getting better.
Domestically, there were expectations of four rate hikes this year. Now the federal funds futures indicate one rate hike and that’s because the U.S. economy is also hurting.
U.S. gross domestic product (GDP) is stalling and spending on essential and nonessential durable goods is slowing.
And with the creation of only 151,000 jobs in January, you have to wonder about the fragility of the jobs market, especially if Citi is correct with its dire assessment.
The only safe place to park cash at this time is either in treasuries or gold, as we are facing a slow-growth investing climate with no real leadership.