Market Crash Anyone?

Just last week prices were just 1.5% away from new all time record highs.  Today prepare for the news truck camping trip to Wall Street.


The U.S. economy is like a bird with a clipped wing: something's always preventing growth from soaring to its full heights.

Sure, the economy's spitting out a healthy 200,000-plus new jobs each month. Consumer spending is solid if not spectacular. Most businesses continue to expand. And the housing market is the strongest it's been in years.


Yet the recovery that began in mid-2009 is the slowest since World War Two in no small part because of repeated domestic or international booby-traps that have blown growth off track. The latest worries revolve around a slowing Chinese economy and a strong dollar that's made U.S. exports more costly and harder to sell.

A fresh batch of reports this week is likely to underscore the Jekyll-and-Hyde performance of the economy. Consumer spending and sales of new homes probably rose at a healthy clip in July, for example, and U.S. growth in the second quarter is likely to be revised sharply higher to around 3.5%.

At the same time, though, economists expect another a decline in orders for long-lasting or durable goods, reflecting weaker conditions in the large U.S. energy and manufacturing sectors. Energy producers have been battered by tumbling oil prices while manufacturers have been dinged by the stronger dollar and the Chinese slowdown.

"The economy just can't get all the oars rowing in the same direction," said Richard Moody, chief economist at Regions Financial in Alabama. "It's really been that way since the recession ended."

All eyes on China

The weakness in the global economy has spawned fresh anxiety, especially after China reduced the value of its currency in a response to slowing growth.

China has the world's second largest economy and it acts like a sun to many economies of smaller nations that orbit around it. When China's growth dims it casts a shadow far and wide.

The shadow has already fallen on oil prices and global stock markets, even in rich and powerful nations such as the United States. The S&P 500 index, for instance, has tumbled 6% since late May ( touched the lowest level in six months. Further stock declines could undermine the confidence of investors and consumers in the U.S. if they persist.

Oil prices, meanwhile, briefly sank below $40 a barrel last Friday for the first time since the Great Recession. Just a year ago, prices hovered around $100.

While a large dollop of the decline reflects a surging supply of oil -- a boon driven by fracking in the U.S. -- the price of fuel also reflects current and future demand for energy. Lower prices are usually a sign of slower growth now or in the near future.

Jay Bryson, global economist at Wells Fargo, said Europe and Japan would suffer worse if growth in China and other developing nations sours. But anything that hurts Japan and Europe would also pinch the U.S.

Some economists argue the worries about China are more imagined than real -- a temporary fog that will soon lift. The country is expanding at a nearly 7% annual pace, official data shows, and the government still has ample financial means to prop up growth if the economy wilts.

"China's difficulties do not seem to be spreading to the rest of the world," economists at Capital Economics contend.

Others point out that the U.S. is more shielded from the ups and downs of the global economy since most of the buying and selling at home involves goods and services that never leave the borders. That's why the U.S. has been growing faster than most of the rest of the world since the end of the Great Recession more than six years ago.

Some of the side effects of the China-fueled anxiety aren't all negative, either.

For one thing, cheaper oil puts more money in the pockets of American consumers and in the coffers of U.S. companies. A stronger dollar allows them pay less for foreign-made goods such as Japanese cars, Korean-made HDTVs or French cheese.

Still, the fresh wave of doubt about global economic conditions likely means U.S. growth will remain constrained in the months ahead. American businesses have already responded by trimming investment or other big-ticket purchases and scaling back on new hiring.

That will only make the job of the Federal Reserve even harder as it prepares to raise interest rates for the first time since 2006. Until very recently Wall Street believe the first rate hike was coming in September, but the odds of a divided Fed holding off a bit longer appear to be growing.

Read: Wall Street suddenly leery about September rate hike (

-Jeffry Bartash; 415-439-6400;

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Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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