There’s no shortage of adamant economic prognosticators, very sure of themselves and their message. However, the reality is that their opinion and $5 will barely get you a cup of coffee at Starbucks. Last month, the S&P 500 Large Cap Index hit the dreaded “Death Cross” Formation. That’s where its 50-week moving average breaks below its 100-week moving average. It’s happened twice before in the past sixteen years and in both cases, ushered in economic collapse (the Tech Bubble Burst 2001 and Banking Debacle 2008). On the other hand, another analyst is quick to point out that every time the S&P 500 monthly closing price breaks above its 20-month average, a year later the market had moved higher 26 times out of 26 occurrences, in the last 50 years.
But these are technical patterns that are easily reviewed after the fact and within typical market scenarios. There is nothing “typical” about our current condition. There are three issues that completely outweigh any other market consideration, in how they might play out. The first consideration is the U.S. Fed, who seems hell-bent to raise interest rates, in order to fortify the Dollar. But they just can’t achieve ongoing support from the necessary economic indicators. The hawkish tone and dovish indicators have caused a see-saw market and in the absence of any real market movement, based on economic activity, the only market movement has been entirely artificial. The next consideration is the fact that China has been spending a great deal of energy trying to get the U.S. Dollar reduced or removed as a global reserve currency. In addition, their new Asian Infrastructure Investment Bank, created to give China more control than they had with the Japanese run Asian Development Bank, kicks off its first annual meeting next month in Beijing. Usually staunch American allies, Australia, Canada, South Korea and the United Kingdom were quick to join, despite the U.S. call for concern. The potential growth of China as an emerging market in a global sea of stagnation was too attractive to ignore, despite any U.S. concerns. And finally, the upcoming Brexit vote threatens to open the door for the complete dismantling of the European Union. These are serious events, capable of reshaping the entire global economic structure.