07 Jan 2019 Financial Outlook
Although most of the US indexes are still in record territory, December turned out to be very bad for stocks. All the gains for 2018 were wiped out. The markets have since been making a slight recovery as we start the new year. The two biggest issues hanging over the US markets are the US debt and the US/China trade war.
US Unemployment Rate
Let us take a moment and consider the US unemployment rate and its significance to the stock markets. One would think that if the unemployment rate is low, the future looks bright for the economy. Astonishingly, the opposite is true if we look at the historical data in the chart below.
We can clearly see that when the unemployment rate is low, a market correction is just around the corner. We will soon start seeing lower auto sales, poorer home sales as well as a dropping transport index on the Dow Jones. We might see a stock rally which will be short lived. The bear market has started as I have been preaching for quite a while. The recent huge drop in Apple I-phone sales in China is a precursor of more big multi nationals taking a hit on their earnings.
In 2008 the banks were able to rescue the market by buying up bad debt. I wonder who will rescue the banks when we get deeper into the new bear market? The blue line in the below chart show the current S&P500 chart. The red line shows a projection of what happened in 2008! Does it look similar to you?
If history repeats itself, the above chart gives us an idea what is in store for the financial markets. The Dow has broken the 24000 level already. We might see a upward test of the 24000 level, but it remains to be seen if it will hold. If the Dow breaks the 23000 level, the next stop is 18000 and 14000 after that. This is serious recession territory.
It was interesting to see the gold price shoot up $13 and the silver price gaining 1% during the bad stock market days over Christmas. It gives us an idea of what will happen to precious metals in the future wild market swings as investors run for safe haven assets.
I still firmly believe the gold and silver prices will move up substantially once investors start to buy precious metals.