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Too early to talk decoupling
Well, the new year is certainly off to an interesting start.
There’s a lot of talk in the markets about the US “decoupling” from Europe in terms of the stock market no longer being so reactive to the developments regarding the on-going issues there. Probably too much talk, actually.
Is the US economy looking better than that of Europe right now? You bet.
This isn’t to say economic growth here is going to go gang-busters. It’s a matter of degrees. Europe is going to take a while to work through its problems, but in the US we still have plenty of issues of our own, plus the uncertainty created by a presidential election (and probably at least as important, another round of Congressional ones). We also still have a lot of people out of work, so we’re not suddenly going to start growing at 5%.
My caution to those getting really revved up about decoupling is to beware of the general seasonal patterns. As I’ve written before, January is a strong month for the dollar, presumably because of capital flows into the US. At one point last week we saw the dollar, stocks, and bonds all up at the same time, which hasn’t happened too often in a long while. That’s a pretty good indication of money coming into the US from abroad. How much of that, though, is just normally seasonal activity?
I personally won’t be giving a lot of thought to the decoupling discussion until later in the month when the seasonal factor starts to drop away and we get a cleaner look at things. As I wrote for my Club members this week, I think the stock market is at a major decision point. It could go sharply in either direction from here. Having seen no real impact from Friday’s payroll figures, I’m a bit worried about the downside – at least from a longer swing timeframe perspective.
Best wishes,
John
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