The market zigzag of the past few weeks has made it abundantly clear again that whatever happens in Europe, or anywhere else in the world for that matter, does affect U.S. markets. The WSJ had more thoughts on the topic of decoupling in “No Sign of That Decoupling in Markets:”
Earlier this week, there was a dubious meme being purveyed on the Internet and by some TV talking heads that the U.S. was somehow “decoupled” from the problems in Europe.
Try to resist the obvious first reaction that these people immediately need to seek out the nearest time machine and set the dial to “2008″ to see how the whole decoupling thing has worked out in recent history.
Because they need only to witness the action in U.S. markets today to see that the notion of decoupling is, was and shall be until further notice complete bunk.
Stocks have been driven lower and Treasury bonds have been driven higher by yet another (predictable) decline in the euro and a few rumors, some sillier than others, swirling around from across the Atlantic, including talk that France and/or Germany have at various times in the past couple of weeks threatened to leave the euro or some such.
This week’s great decoupling hope was based on a Goldman Sachs econ note that pointed out, perfectly reasonably, that U.S. exporters aren’t overly exposed to European importers, meaning the U.S. economy could withstand a very weak European economy.
What was ignored by many was another key element of the Goldman report, which pointed out, again reasonably, that the trouble Europe was causing in financial markets could *not* be ignored. And we’ve all seen, again and again and again this year, that no matter how strong the U.S. and global macro data, trouble or rumors of trouble out of Europe have been enough to shake global financial markets.
And that time machine journey to the olden times of 2008 would be a reminder that if financial markets stay troubled long enough, the global macro-economy is sure to follow. We’re all in this, tightly coupled, together.
Sure, some markets will lead on the way up and on the way down, but in the end there is no one country, or stock market, that can escape the effects of any global economic slowdown.
However, there will always be sectors that are having their own bullish cycle, which is what I will be looking for should the domestic Trend Tracking Index (TTI) follow the international one back into bear market territory.