Economic & Stock Market Commentary — August 12, 2015

 

The U.S. stock markets continue their recent weakness, with the Dow Jones Industrial Average (DJIA) suffering more than the other major market indices.

The DJIA has fallen to support levels established in December and January. The S&P 500 has been in a predictable sideways trading range since January. The NASDAQ has a decidedly stronger chart than the Dow and S&P.

It’s normal for markets to alternate strong years and weak years. Make no mistake: we’re not having a “crash”, nor even a “correction”. We’re simply watching the stock market trade sideways for an extended number of months.

One of the more recent influential events is the stock market correction in China, compounded by China’s devaluation of the yuan, both of which affect U.S. exports to China. In the first case, the Chinese have less money available to buy U.S. products; and in the latter case, U.S. products became more expensive to purchase. Therefore, stocks of large U.S. companies which export to China are suffering more than those of smaller companies, which are less likely to be affected by Chinese economics. Thus, we have more strength in the NASDAQ this year, and troubling weakness in the DJIA.

China’s annual GDP growth figures have been rapidly shrinking in recent years, leading to excess industrial capacity, and less demand for commodities. Commodity prices have thus been falling for many months, with Exxon Mobil (XOM), Chevron (CVX), and DuPont (DD) contributing to weakness in the DJIA. Emerging markets have been heavily affected by these economic events, because many of them are commodity producers. They’re also being hit by the recent end to U.S. quantitative easing (QE).

None of this affects my stock-investing decisions. Those decisions are made based on numbers and charts, which already have economic & political events factored into them. I simply mention these international goings-on to investors, so that you get a feel for why the Dow is underperforming this year, relative to the S&P 500 and NASDAQ.

 

Send questions and comments to research@goodfellowllc.com.

Happy investing!

 

Crista Huff

President

Goodfellow LLC

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