As I mull over all of the latest this Sunday afternoon — Friday’s speech by Fed Chair Powell, China’s retaliation, Trump’s retaliation to China’s retaliation, highlights from this weekend’s G-7 summit, violence in Hong Kong, the results of my weekly macro analysis (the PWA Index a little less red (but still red), the technicals continuing to worsen), how currencies are trading as I type, and so on — I see little that would inspire me to, at this point, offer up anything that smacks of optimism for stock prices going forward.
In a nutshell, while the long-term bullish price (in stocks) trend — reflecting the prevailing bias — remains intact, it has indeed been weakening, per the negative divergences in the indicators I’ve been sharing herein the past few months. Our assessment of the underlying fundamental trend (macro economic conditions), however, has already turned negative. Leaving us to ponder two possible scenarios going forward:
1. The underlying trend (which can indeed be influenced by stock prices) reverses and begins moving with the prevailing bias, keeping the present expansion and bull market alive.
2. The prevailing bias reverses; rolling over in sympathy with the underlying trend. The stock market reversal likely taking consumer sentiment along with it and essentially serving as the final nail in the coffin of the longest expansion and bull market on record.
As I’ve been stating herein since the beginning of 2018, I have zero faith that the economic expansion and bull market in stocks can survive the kind of global trade war that was threatened at the time, and is unfolding as I type.
Of course the previous paragraph leaves open the possibility that an ending of the trade war could in fact reverse these negative fundamental and technical trends and rescue the economy: In effect postponing (recessions and bear markets are normal [and necessary] cyclical phenomena) the next painful purging of certain bull market excesses (I’ve been pointing to the corporate debt market of late). Well, clearly, the odds of that rosy outcome are shrinking by the day.
We’ll keep you posted…