New market thoughts from Raymond James’ Jeff Saut: Morning Tack: “Global Growth Grumblings” 08/25/17

“Unlike precious metals, zinc, copper, and aluminum have many applications in manufacturing, and rallies in them are often extrapolated as being a good sign of demand and economic growth.” ‚ĶSentimenTrader (8/22/17)
In case you missed the news, we did not win the $758.7 million Powerball jackpot on Wednesday night, so you are stuck with us again for at least another week. The bulls could have used those winnings, too, for some extra fire power, as yesterday marked yet another lower session light on activity across the major U.S. indices. The last two days have now been comfortably contained within the trading range of Tuesday’s bounce, but perhaps we should just be happy yesterday did not have the same selling pressure as the last two Thursdays. The low volume drift was not too surprising, either, given the time of year and the fact that the collective eyes of the financial world were probably shifting toward Jackson Hole, Wyoming for today’s annual gathering of central bankers. Federal Reserve Chair, Janet Yellen, and European Central Bank President, Mario Draghi, will both give speeches that are sure to be scrutinized, though neither is expected to provide much fresh guidance. The ECB has previously agreed to wait until the autumn to discuss its QE strategy moving forward, and the Fed has telegraphed its balance sheet normalization intentions quite clearly for a while now. Still, investors will be tuned in to the speeches for, if nothing else, reiteration of their current thoughts about the global economy.
Coincidentally, we were hammered yesterday with questions regarding a top article on Bloomberg.com that warned a downturn was coming in the global markets, citing work from a few different firms. It’s hard to respond to something like that, though, when it doesn’t really explain what kind of downturn they’re talking about – 5%, 20%, 50%? As we have written several times recently, we, too, are exercising some patience and a slight bit of caution here due to the lower market breadth readings and, to a lesser extent, seasonality, but we continue to advise against getting overly bearish. There remains very heavy support around and above 2400, so we at least think it’s worth waiting to see if that breaks before exercising additional caution. Moreover, we think it’s going to take some severe economic deterioration or a more major black swan event to push the S&P 500 down below 2322, especially since the market has had difficulty even dropping more than 3% for the last several months (2322 would be a little over 6%).
Speaking more to the strength of the global economy, the Wall Street Journal noted Wednesday that all 45 countries tracked by the Organization for Economic Co-operation and Development (OECD) are on track to grow this year, with 33 of them set to accelerate from the prior year. The article also highlighted a number of different drivers behind the global upswing, including “a broadening of growth outside of the core economies in the eurozone, a consumption-aided expansion in Japan, the fading after effects of the financial crisis, still easy global monetary policy, and a reversal of the commodity bust that began in 2014.” To that last point, Strategas pointed out yesterday that the charts of the industrial metals that are generally somewhat correlated with global growth (notably copper, zinc, lead, aluminum, and nickel) have all been demonstrating improving structural trends lately and are not sending up red flags. So, we continue to think the global economy is better than many believe and that definitely plays into our view that it’s ok to be cautious, but it’s probably a bad idea at this point to get overly bearish. We’ll see if we learn anything more today in Jackson Hole, as the futures are slightly up ahead of the Yellen/Draghi speeches. Hurricane Harvey, on a path toward Texas, also has the potential to hit the U.S. mainland late Friday as the biggest storm in more than a decade, but, so far, oil prices are not reflecting too much worry. Hopefully, that’s a sign of optimism that the storm won’t be too bad, as we send our thoughts to our friends across the Gulf of Mexico.

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