Feeling under the weather, head to America

The S&P has risen for 15 of the past 17 weeks, the longest period since 1989, apparently. The last time we had a correction of more than 2% was 253 days ago. Earnings in the US are powering ahead, and economists are continuing to push forward their expectations for US economic growth while pushing back when the Fed will cut interest rates. Conversely, the economies of Europe, the UK and China are hobbling along. Earnings growth in these regions lagging the US. Naturally, as the US large caps get larger, they become a more prominent part of the portfolio. Those underweight become more underweight, and the less you chase them, the more you become underweight and the greater the risk of underperforming, despite what you may think of the valuations or merits.

Let’s try and look at what is going on elsewhere; on Tuesday, there was a sharper drop in durable goods orders in the US; this can largely be explained by the lack of orders in commercial aircraft after Boeing booked no new orders in January. There were some other slightly more positive data points at the core level, so we can take that one as a score draw as a window into the current health of this section of the US economy. The consumer remains in good health in the US, with delinquency on credit card loans remaining well below levels seen over many of the previous years. It is clear that Covid money went to pay down debt, and saving ratios still remain high, which must continue to contribute to the underlying strength of the economy.

There are other indicators that are more obvious but maybe more ignored as to the underlying strength of the economy outside of the US. The Bloomberg commodity price index has been falling continuously since mid-2022. A sharp fall in the price of commodities in the middle of 2022 has continued all through 2023 and continues through into 2024. The index has now fallen roughly 30% since its peak of 2022. A downward trend in commodity prices generally reflects a slowing global economy. The oil price remains close to the bottom end of its trading range despite rising geopolitical risks and OPEC production cuts.

I guess the question is how long can the US economy continue to buck the trend of the rest of the world, or is it now so self-sufficient it is now indifferent to what’s going on elsewhere in the world? They said the world catches a cold when America sneezes, it would appear that when the rest of the world has a cold America barely sneezes. Later today we get another raft of US economic data to pour over. Perhaps we will see if America is starting to feel a tad under the weather.