Yesterday was a day of pondering in the markets, as concerns mounted about the possibility that the global recovery might be slowing down.
Inflation concerns in China and Great Britain occupied front page news followed by disappointing domestic retail sales in January.
Energy shares were a drag on the market, after Monday’s strong jump, following the theme that potentially slower sales growth will translate into less demand for energy products.
The beneficiary of the inflation fear story was gold, which headed higher for a second day in a row. Even though gold has been flat since the beginning of the year, it still should be an important component in an investor’s portfolio. Not only will inflation concerns in other parts of the world support its trend, so will sudden unexpected global uncertainties, which are sure to surface again.
While inflation is not a threat in the U.S. at this point, it sure is in other countries, such as China and Britain, among others. China reported a 4.9% inflation rate last month, which is about a 2-year high. Great Britain comes in at a close second with 4% followed by Spain with 3%.
Food prices have been rising around the world, which is represented by the fact that the commodity index (DBC) has risen sharply. While prices have not always been passed on to the end user yet, this development is worrisome in the sense that those with current high inflation rates will have to step on the economic brakes, so to speak.
Depending on the severity of the actions taken, that will not bode well for future global expansion and will eventually affect stock markets worldwide.
Disclosure: Holdings in DBC