Last week might be psychologically important, because it was the first down week this year. The Chinese PMI (manufacturing index) was below expectations, meaning there was new evidence that the growth engine of the world was not growing as fast as before . . . even though China’s leadership said it WANTED to slow down its growth, in order to forestall inflation. Then, mining giant BHP Billiton warned of slowing demand from China, affirming the PMI report.
Next, we learned the European Union PMI was also below expectations. This may mark a new chapter in Europe, which may now focus more on growth and less on austerity, as suggested in this blog months ago. (More ominously, Spanish bond yields started rising, suggesting it has not been as successful as Italy in strengthening its balance sheet.)
As the world began to see the U.S. last week as more of a growth engine, they started buying dollars, which increased the value of the dollar, which in recent history, has invariably hurt the stock market.
Did anybody notice that unemployment claims were less than expected last week or that Norfolk Southern said rail demand was greater than expected — neither did Wall Street.
Most importantly, bull markets are never a straight line up. It will pause every few months to consolidate before resuming its climb. We are on a plateau for now. Every day, we will nonetheless hear sirens of a pending crash, just like I’ve been hearing for 46 years.