The Latest On The Global Economy: Broadening Global Growth Is Risky But Good For The Markets In the Long Run

Visceral political shifts to the left and esoteric financial issues are combining to make the markets skittish over the global economy. The volatility risk premium points to a higher market over the next few days, but my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought one positive factor for US stocks. The action in major currencies indicates the $US is weak. But there were also several negative factors across global asset classes. Copper and Oil charts are pointing to declining global GDP expectations. The US yield curve is bear flattening. Expect the S&P 500 to be range-bound over the next few days.

The global economy is slowing and risks being disrupted by further leftist policies out of China or Germany and the esoteric financial sector issue of transitioning from the scandal-plagued interest rate LIBOR. All of these risks are enough to push the market into a correction this month. I see the correction as likely providing a strong buying opportunity as none of the above risks are likely to fructify into negative momentum in the global economy. The risk of Omicron and new variants of COVID is similarly a risk that fills the wall of worry that markets historically climb rather than retreat from, based on initial impressions from the battle-hardened global medical community.

China's manufacturing sector is retreating according to its latest PMI data but as I wrote about last week the slack is being partially taken up by robust South Korean exports and steady growth in Japan. In Europe Germany is slowing down owing to COVID but even here other countries like Italy picking up the slack (per their respective PMIs). The market is likely to correct on worries regarding this broadening out of global growth from the traditional growth powerhouses, as well as the new Fed hawkishness signaled by Powell yesterday. I don’t see the Fed doing anything to risk a bear market so the correction will likely present the first buying opportunity for 2022.

My current market positions include a large cash position, and the following holdings: Activision (ATVI), Amgen (AMGN), American Express (AXP), Johnson & Johnson (JNJ), 3M (MMM), and a small net long position in S&P 500 (the levered inverse ETF SPXU and levered ETF UPRO).