The Line Between Progress and Reality Is BlurredThe gap between the rising U.S. stock market and the visible deceleration in the rate of global economic growth has been widening in a more dramatic and conspicuous fashion over the past several weeks, and my cautious market view is growing more bearish. The weakness in the most recent U.S. March ISM release, the fall in consumer and small business confidence, disappointing March retail sales, a sharp drop in the Citigroup U.S. Surprise Index, worsening EU economies and/or any of a number of other factors affirm that global growth is slowing to a rate that will likely imperil the ambitious consensus for corporate profits. Other recent endorsements of the slowing global growth thesis include (most notably) the intensification in the drop in commodity prices (copper and gold, in particular). Also:
- U.S. Treasury yields are falling;
- the yield curve is flattening;
- the high-yield credit market is no longer rallying;
- the economically sensitive transportation index is faltering;
- there has been a near-record percentage in the number of companies issuing earnings warnings;
- the U.S. stock market leadership is focused on defensive high-quality consumer staple stocks (paying relatively high dividends) as opposed to aggressive, high-beta stocks; and
- with the exception of the U.S. and Japan, many markets around the world are struggling.