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Slowing Global Growth May Derail The Bull Market

By Michael KramerMarket OverviewNov 05, 2021 07:37AM ET
www.investing.com/analysis/slowing-global-growth-may-derail-the-bull-market-200607444
Slowing Global Growth May Derail The Bull Market
By Michael Kramer   |  Nov 05, 2021 07:37AM ET
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This article was written exclusively for Investing.com.

Sometimes when investors are so focused on one event, they miss the big one staring them right in the face. The manufacturing sector in China has been contracting for two months, based on the China Manufacturing PMI. This slowdown seems to have gone unnoticed by US equity markets.

The weakness is not only noticeable in the PMI. Iron ore futures have plunged by nearly 50% since the middle of July, while the Baltic Dry Index has fallen by almost the same amount in only four weeks. Additionally, commodities like soybeans have fallen nearly 25%. Whatever is driving this weakness in China, the fact is that something is happening outside of the world of inflation, and, at the end of the day, it may end up carrying more weight.

China Manufacturing PMI
China Manufacturing PMI

Ignoring The Risks

Given the collapse in some of these key commodity prices and shipping rates, it seems growth in the second-largest economy is slowing. An article in the South China Morning Post recently noted new downward pressure facing the economy. This is very important, given that China is the world’s second-largest economy and any slowdown there is likely to have a ripple effect across the globe.

However, the US markets have largely not even taken any notice. Since the middle of October, the S&P 500 has been on a massive risk-on rally, climbing to yet another new all-time high. Instead of noticing the weakening growth trends, it has remained focused on the risk of rising inflation rates and the need for the Fed to taper its asset purchases.

Watching Inflation

While inflation has been a persistent problem worldwide, the question is if it will remain persistent. With most of the problems coming from the supply side, one would think that those prices would adjust and stabilize over time as supply becomes available.

As a result, yields on the short-end of the curve have risen sharply due to these short-term inflation pressures and yields on the long-end of the curve have moved sideways. It would seem to suggest that the longer-end of the bond market is worried about long-term growth prospects more than short-term inflationary challenges.

This slowing of the Chinese manufacturing sector may even be what the US yield curve is starting to reflect and related to slowing global growth. Even Germany saw retail sales fall by 2.5% month-over-month for September, while its manufacturing PMI came in weaker than expected and slower than last month.

Germany Manufacturing PMI
Germany Manufacturing PMI

When Will It Realize?

While the US markets appear not to be paying attention to any of this, one thing is clear, Asian markets are, with places like South Korea seeing its KOSPI fall by about 10% from its highs, and the market in Taiwan down about 5% and trending lower since the middle of July. Additionally, the market in Australia has trended sideways since June.

The warning signs seem to be growing, and the more prices of crucial commodities fall, the more significant and more glaring the signals become. Ultimately, it may only be a matter of time before US markets wake up to the warning of a global growth slow down. To think, just as the Fed begins to taper.

Slowing Global Growth May Derail The Bull Market
 

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Slowing Global Growth May Derail The Bull Market

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Comments (14)
Nicholas in North Carolina
Nicholas in North Carolina Nov 05, 2021 12:47PM ET
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Sounds like a good time to rotate out of US stocks and incrementally invest in China and global stocks for a LT investor.
me ish
me ish Nov 05, 2021 12:47PM ET
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go the whole hog mate - short US equities - especially the overprices Nasdaq - start monday morning!!!
Sanjay Kumar
Sanjay Kumar Nov 05, 2021 11:35AM ET
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You need to know the reason of these metrics coming out of china. Once you know that, your views will change.
Roberta Garrett
Roberta Garrett Nov 05, 2021 11:35AM ET
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so what are the reasons ?
Joseph Levy
Joseph Levy Nov 05, 2021 11:35AM ET
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Sanjay,Do you have an answer to Roberta’s question?
Navin Goyal
Navin Goyal Nov 05, 2021 11:35AM ET
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r v chasing in limit ok just check v r in upper point in circle but this is vomit but v r just functional orbit
Jan Skilbrei
Jan Skilbrei Nov 05, 2021 11:34AM ET
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Professionals watch earnings growth estimates. Not try think, oh it is too high! can be wrong for a decade
me ish
me ish Nov 05, 2021 11:34AM ET
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the best investors in the world look at many factors including bond yield convergence, Shiller adjusted price to earnings, margin levels - there's plenty to see that shows that you're playing with fire if you're in most equities right now - especially US equities - it's the gamblers and the retail investors (dummies) that are propping up this market right now - the smart money is already out.
Wankel YU
Wankel YU Nov 05, 2021 11:31AM ET
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next Target, dji 40000, nq 30000,
Mario tragik
Mario tragik Nov 05, 2021 11:20AM ET
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Oh but "US markets" aka smart money has noticed, hence pumping the prices to ATHs to ... guess what? Sell at the best price to retail investors.
Mario tragik
Mario tragik Nov 05, 2021 11:20AM ET
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... for maximum profits. checkmate.
Vijay Thorwe
Vijay Thorwe Nov 05, 2021 11:19AM ET
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Indian market will rise on this.
Ikaika Sarkissian
Ikaika Sarkissian Nov 05, 2021 11:08AM ET
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Transitory🤣
Jermaine .A
Jermaine .A Nov 05, 2021 11:06AM ET
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The bull market will derail when the money printing stops
me ish
me ish Nov 05, 2021 11:06AM ET
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bull markets derail usually a few days after a taper announcement - that's the history of the last 12 years when the FED has announced any kind of monetary tightening. - one last pump by the industry - hand the overpriced bag over to the retail investor and then dump! And so the wealth transfer continues.
stefan mihalea
stefan mihalea Nov 05, 2021 11:05AM ET
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who will pay more? USA or EUROPE?
frendy glasser
dejong099 Nov 05, 2021 9:14AM ET
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I suppose if the analysts keep predicting a market pull back, eventually it will happen.  I've been reading doom and gloom for several weeks now:  the tapering is being ignored, watch out!  Non-farm payrolls will be over 500,000, watch out!  and so on.
Eric Haley
Trend_Seeker Nov 05, 2021 9:14AM ET
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What you're seeing in the stock market is no sign of a healthy economy. It's extreme greed, euphoria, and complacency that's driving this market higher. When the risks everyone is ignoring come to fruition, retirements will be wiped out. It's going to be worse than 2008. The writing is on the wall. And if you have been in the market long enough, this is completely obvious.
Roberta Garrett
Roberta Garrett Nov 05, 2021 8:50AM ET
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Excellent article thanks for writing this piece. Its difficult to find any other points of discussion other than fear about inflation, which to me is secondary. The reality is much more complex. Supply chains were stressed before covid, and no tariffs on everyone/everything along with a high dollar in 2018/19 has only compounded the problems. It interesting you point out how supply chains problems will drive inflation way before taper.
Petet Larkar
Petet Larkar Nov 05, 2021 8:50AM ET
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lol.. this guy is clueless.
Tom Sc
Tom Sc Nov 05, 2021 8:50AM ET
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why dont you say what he is clueless about?
Eric Haley
Trend_Seeker Nov 05, 2021 8:50AM ET
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Petet obviously hasn't been in investing long enough to recognize the tell tale signs of a bubble. Good luck buddy.
Roberta Garrett
Roberta Garrett Nov 05, 2021 8:50AM ET
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Thanks Tom for pointing this comment out. this site has great writers but I would like to see the comments more thought provoking. Seems the hype and sentiment are what drives most comments.
me ish
me ish Nov 05, 2021 8:50AM ET
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Tom Sc  because they're a paid FED shill
soho electronics
soho electronics Nov 05, 2021 8:14AM ET
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nothing can derail.. tomorrow nasdaq will hit 30000!!
Dhia Betar
Dhia Betar Nov 05, 2021 8:14AM ET
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lets party baby
Eric Haley
Trend_Seeker Nov 05, 2021 8:14AM ET
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People like you have turned this market into a casino.
 
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