From the latest Macro View edition by Bloomberg macro commentator and former Lehman trader, Mark Cudmore
Stock markets look set to continue to slide in the days ahead.
There are too many small warning signs building up at a vulnerable time for markets. Just because a 3% correction hasn’t happened for a long time doesn’t mean that one isn’t possible. Quite to the contrary, it suggests there are a lot of complacent longs that may over-react to a pullback.
It’s also important to emphasize the proviso that the three pillars of the secular bull market remain solid: growth, earnings and liquidity. There’s no obvious reason to turn structurally bearish, but that’s not the same as thinking that every dip needs to be bought instantly.
After a tremendous year of gains, the S&P 500 is particularly vulnerable to profit-taking as Thanksgiving Day and the looming debt-ceiling issue provide further complications to the implementation of a potential tax reform package.
China has been the engine of global growth, but Monday’s disappointing credit data will make investors nervous that the much greater policy focus will now be on deleveraging – and that will weigh on Asia broadly.
Japan has been a bellwether for the most recent equity gains, but last week’s volatile hiccup and subsequent price action look very bearish technically. After a parabolic gain the past two months, a pullback here would only be a healthy consolidation in the grand scheme of things.
European equities are leading the correction already, while U.K. stocks will remain under pressure from domestic politics and Brexit talks.
At this time of year, there are plenty of traders who’ll only need a nudge to take 2017’s profit and move to the sidelines. In contrast, there’s a dearth of reasons for fresh bulls to join in now.
Sometimes in markets you don’t need one headline catalyst to shift sentiment. Equity markets fall just because there are more marginal sellers than buyers.