KINGSTON, NY, 3 APRIL 2019—Happy Equity Market Days are here again! The S&P 500 has kicked off its best start to the year since 1998. Over in China, the Shanghai stock market has surged more than 27 percent year-to-date. Globally, equity markets hit a six-month high.
Despite growing concerns of a synchronized global growth slowdown, equities were boosted this week on better-than-expected manufacturing data from China and the U.S., and reports of progress on trade negotiations between the two countries.
However, the “good news” trending for markets has less to do with economic fundamentals and more to do with central bank monetary methadone shots being injected into the financial systems to help counter slowing economic growth by lowering interest rates and/or implementing more quantitative easing provisions.
In fact, while markets have gained considerable ground since hitting record lows last December, as we had forecast on 4 January when the U.S. Federal Reserve announced they would be “patient” in raising interest rates this year, those cheap money measures would push equities higher.
For example, after a record-setting $1.1 trillion in stock buybacks in 2018, with the cheap money flows continuing, this year, American companies have already bought back $253 billion in shares, pacing toward another record.
However, these cheap money flows have heightened the risks of a global market meltdown.
From ballooning consumer debt to private equity groups going deeper in debt in their competition to win merger and acquisitions, global debt overall is nearing $250 trillion, which is more than three times Gross Domestic Product worldwide. And in the U.S., non-financial corporate debt stands at 73 percent of GDP, close to its pre-crisis peak.
We forecast that ballooning debt combined with a fear of rising oil prices at a time when retail sales are softening worldwide, will bring down both markets and economies. As we enter into the peak driving season, the more money consumers put in their gas tanks, the less money will go into products and services.
Thus, we forecast that should oil prices, now just shy of $70 a barrel for Brent crude, spike above $75, it will trigger the onset of a Stage One recession.
TREND FORECAST: With oil prices having already hit their highest level this year, and with the U.S. imposing more sanctions against Iran and further Venezuelan disruptions… plus deepening OPEC-led supply cuts, the prospects for higher oil prices are intensifying.
While equity markets have trended up, and some economic indicators have turned positive, the overriding trend line still reflects slower growth on a global scale which will negatively impact stock markets.
GOING FOR THE GOLD
And while we have forecast that absent a wild card gold will be confined to the tight trading range of the past 6 years, a sharp spike in oil could be the trigger that ignites gold. Once gold surpasses and holds steady at the $1,450 mark, we forecast it will spike to $2,000 an ounce and more.