Ominous precedents to present market cycle

The market is showing signs of weakness, and similarities to previous market tumbles. Here is a direct video link.

The first half of this clip is useful for its historical context. The latter half is the usual financial-tainment where hosts pose as savvy traders in an effort to keep viewers watching.

The below chart offers further useful perspective in its comparison of the S&P 500 and the Shanghai composite since 2008.

Source: Cory Venable, CMT, Venable Park Investment Counsel Inc.

Recall that these two exchanges represent the world’s two largest economies: China and the US. And that stock markets have traditionally moved as a leading indicator for economic growth. Here we can see that as Chinese GDP growth rebounded ahead of the global economy out of the 2009 recession into early 2010, the Shanghai composite led the way rebounding 109% (after falling 73% from November 2007 when the Shanghai topped at 6124 to November 2008 when it bottomed at 1664). Since late 2010 however, the Shanghai composite has fallen a further 36% in a fresh cycle downturn with the global economy.

At the same time, the S&P 500 has decoupled from the downturns in both emerging markets and global growth to soar into a world all of its own. US growth has slumped from a peak of about 4% in the fourth quarter of 2011 to barely over 1% over the past 3 quarters and still US indices have defied contracting global demand and stagnating revenue and profits among their constituent companies. In fact, apart from QE-supported financial firms, earnings growth is actually now negative for all the other S&P 500 sectors coming into Q3. The warning signs for capital have rarely been flashing brighter, and yet “experts” who will say they are bearish on US stocks today are nearly extinct. Classic.

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