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By Mike Larson
http://www.moneyandmarkets.com/experts/mike-larson
Stocks took another header today, with the Dow Industrials plunging 469 points, and the Nasdaq Composite shedding 2.8%. The VIX index of volatility jumped to almost 34, while "risk off" moves were the name of the game in currencies.
What's causing the renewed turmoil? A simple fact: Numbers don’t lie. And today, they showed that manufacturing and exports are tanking worldwide.
ArrowIn China, a key “official” index of manufacturing activity sank to 49.7 in August from 50 in July. That was the weakest in three years. A separate private report on production also remained stuck near its lowest in more than six years.
ArrowIn South Korea, exports plunged at a massive 14.7% rate in August. That was far worse than the mid-single-digit decline that was expected, and the biggest plunge since the 2009 Great Recession.
ArrowManufacturing activity in Chinese trading partners like Malaysia, Vietnam, and Japan is also falling. Indonesia showed its 11th straight contraction last month.
Manufacturing in China and elsewhere in Asia is struggling.
Arrow Many on Wall Street had been counting on the U.S. to hang in there, even as many foreign markets and economies deteriorate. But today’s Institute for Supply Management report dashed those hopes. The U.S. index sank to 51.1 in August from 52.7 in July. Not only did that miss economist forecasts, but it was also the worst reading since May 2013. That’s 27 long months ago.
Seeing a trend here? The numbers show the global economy is losing momentum, led by sharp slowdowns in emerging markets. Heck, even our neighbor to the north, Canada, just slipped into recession after its economy shrank for the second quarter in a row.
Now here’s where things get interesting to U.S. investors. I noted several days ago that the junk bond market was trading at levels that suggested the Dow Jones Industrial Average could trade down to around 13,000. A separate carry trade index I wrote about on Aug. 28 is trading at a level last seen when the Dow went for about 10,000.
The last time the Chinese manufacturing index was at these levels, the Dow went for the mid-12,000s. And the last time our ISM index was at these levels, the Dow was around 14,800.
Again, I’ll ask: Are you seeing a trend here? We’ve seen the U.S. stock market start to crack, with wild declines and equally powerful short-term bounces. But we’re still trading at far higher levels than several indicators suggest we “should” trade at.
“Raise cash, grab profits, sell losers and buy hedges.”
None of that guarantees stocks will plunge. Other influences can drive equities on any given day, week, or month. But the sum total of the indicators I watch suggest this is the time to “raise shields,” so to speak, and gird for a battle with an increasingly volatile market. That means raise cash, grab profits, sell losers, and buy hedges like inverse ETFs and put options on big rallies when they’re cheap.
Are you doing that yet? If not, why? What do you think about the Dow’s fair value – is it 14,800? 13,000? 10,000? Or have stocks already declined enough to reflect the threats I just highlighted? These are hugely important questions, so please go visit the Money and Markets website and let me know what you think.
Source: http://www.moneyandmarkets.com/lates...orldwide-73131
http://www.moneyandmarkets.com/experts/mike-larson
Stocks took another header today, with the Dow Industrials plunging 469 points, and the Nasdaq Composite shedding 2.8%. The VIX index of volatility jumped to almost 34, while "risk off" moves were the name of the game in currencies.
What's causing the renewed turmoil? A simple fact: Numbers don’t lie. And today, they showed that manufacturing and exports are tanking worldwide.
ArrowIn China, a key “official” index of manufacturing activity sank to 49.7 in August from 50 in July. That was the weakest in three years. A separate private report on production also remained stuck near its lowest in more than six years.
ArrowIn South Korea, exports plunged at a massive 14.7% rate in August. That was far worse than the mid-single-digit decline that was expected, and the biggest plunge since the 2009 Great Recession.
ArrowManufacturing activity in Chinese trading partners like Malaysia, Vietnam, and Japan is also falling. Indonesia showed its 11th straight contraction last month.
Manufacturing in China and elsewhere in Asia is struggling.
Arrow Many on Wall Street had been counting on the U.S. to hang in there, even as many foreign markets and economies deteriorate. But today’s Institute for Supply Management report dashed those hopes. The U.S. index sank to 51.1 in August from 52.7 in July. Not only did that miss economist forecasts, but it was also the worst reading since May 2013. That’s 27 long months ago.
Seeing a trend here? The numbers show the global economy is losing momentum, led by sharp slowdowns in emerging markets. Heck, even our neighbor to the north, Canada, just slipped into recession after its economy shrank for the second quarter in a row.
Now here’s where things get interesting to U.S. investors. I noted several days ago that the junk bond market was trading at levels that suggested the Dow Jones Industrial Average could trade down to around 13,000. A separate carry trade index I wrote about on Aug. 28 is trading at a level last seen when the Dow went for about 10,000.
The last time the Chinese manufacturing index was at these levels, the Dow went for the mid-12,000s. And the last time our ISM index was at these levels, the Dow was around 14,800.
Again, I’ll ask: Are you seeing a trend here? We’ve seen the U.S. stock market start to crack, with wild declines and equally powerful short-term bounces. But we’re still trading at far higher levels than several indicators suggest we “should” trade at.
“Raise cash, grab profits, sell losers and buy hedges.”
None of that guarantees stocks will plunge. Other influences can drive equities on any given day, week, or month. But the sum total of the indicators I watch suggest this is the time to “raise shields,” so to speak, and gird for a battle with an increasingly volatile market. That means raise cash, grab profits, sell losers, and buy hedges like inverse ETFs and put options on big rallies when they’re cheap.
Are you doing that yet? If not, why? What do you think about the Dow’s fair value – is it 14,800? 13,000? 10,000? Or have stocks already declined enough to reflect the threats I just highlighted? These are hugely important questions, so please go visit the Money and Markets website and let me know what you think.
Source: http://www.moneyandmarkets.com/lates...orldwide-73131