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Will A Global Recession Cause U.S. Stocks To Slump?

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Will A Global Recession Cause U.S. Stocks To Slump?

As the markets brace themselves to launch into the third quarter of 2016 with expected declines, analysts are predicting the lower corporate endings downward trend pattern to repeat. 

This is the fifth quarter in a row to show a year-over-year climb down that is mirroring market forecasts.

The S&P 500 is expected to report profits of -5.2% which point to a definite encroaching lessening in the margin of earnings. 

This reliable stock market index for the US bases its calculations on the capitalizations in the market of the top 500 US companies that have stock listed on the country’s exchanges.

This trend is following the pattern that the markets displayed in the blackened climate that prevailed in the recession years of mid-2008 and mid-2009.

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Take a look at the graphs below.

The first graph is from 2008, and the second shows the current trends in 2016.

They are indicating the same patterns of behavior:  

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  • Two market areas that lead concerns will follow.
  • Markets with significant impact, like the Chinese SSE (Shanghai Stock Exchange), are also displaying stress patterns and the government of the People’s Republic of China are attempting to quiet the voices that are currently expressing concerns. This is in the country’s best interests as a calm market environment has always been of importance in this burgeoning new economy.
  • The ricochets still being felt in Europe, after the shock leave vote that was registered in Britain that opted out of the European Union has raised some voices of concern regarding the continued viability of the European markets.
  • The Brexit vote brought to attention the continued importance of Europe having to show strength when compared to other more stable economy options. The precipitous drop in the pound sterling has stabilized, but it seems that the markets are still watching events with a cautious eye.

These factors continue to raise alarm bells as the global events around the world may be seen to have a knock-on domino effect regarding optimism felt in the US markets. 

This will culminate in a possible market correction.

History Repeating Itself

Since the massive market drop that occurred in 2008, investors in equities are today facing a lackluster market. 

This brings with it the possibility of stock prices being projected down. 

Action in other investment arenas are showing little movement too.

Fixed-income and bond yields are currently low, and other options are showing the same behavior.

Corporate profits and earnings have been struggling for a considerable length of time. 

The Federal Bank’s continued low rates have escalated asset prices to a level where they are no longer thought tenable.

Analysts now have to take into their forecasts two possible market trajectories:

  • Whether a down swing will be a genuine correction that will allow the Federal Bank a chance to adjust its rates or:
  • Will a more severe panic lead to long term serious implications?

Paying Off The Chinese Debt & Minimum Salary Increases

The US domestic economy is currently overburdened with the massive loans outstanding to China. 

It has also experienced an increase salary crawl. 

This has caused the need for corporate America to look overseas to stimulate revenue.

The graph below displays the decline in the purchasing power of the average American salary.  

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Over 30% of the revenue taken by corporations listed on the S&P 500 have obtained it in the overseas markets. 

Taking away this active stream of income, it will be uncertain that the corporations will still experience the growth needed to continue projecting vibrant profits.

The less definite causative factors may be the Chinese markets predilection to maintain the devaluation of its currency to stimulate its export desirability. 

Europe seems set to experience a period of inaction while it licks its Brexit wounds and gingerly tests the waters.

All of these signs point towards correction. 

This is not a current certainty, however, as an industry strategy paper lately commented that a drawdown is not predicted shortly. 

It is other where indicated, though, that earnings expected in the future are not such as will support the stock prices listed in the US.

It is not likely that investors will go quietly into the night and ignore the results that show revenue falling in the teeth of earnings growth forever.

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Economy

STUDY: Number of Billionaires Doubles in Last Decade

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Number of Billionaires Doubles in Last Decade
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The number of billionaires has doubled in the past decade and the world’s wealthiest 2,153 people controlled more money than the poorest 4.6 billion combined last year, the charity Oxfam said Monday.

Meanwhile, unpaid or underpaid work by women and girls adds three times more to the world’s economy each year at least $10.8 trillion than the technology industry, the Nairobi-based charity said in its “Time to Care” report.

Women around the world work 12.5 billion hours combined each day without any pay or recognition, while the world’s 22 richest men have more wealth than all the women in Africa.

“It is important for us to underscore that the hidden engine of the economy that we see is really the unpaid care work of women. And that needs to change,” Amitabh Behar, CEO of Oxfam India, told Reuters.

“Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist,” Behar said ahead of the annual World Economic Forum in Davos, where he will represent Oxfam beginning Tuesday.

“Women and girls are among those who benefit least from today’s economic system,” he added.

There will be at least 119 billionaires worth about $500 billion attending Davos this year, according to Bloomberg, with the highest contingents coming from the US, India and Russia.

“The very top of the economic pyramid sees trillions of dollars of wealth in the hands of a very small group of people, predominantly men,” the Oxfam report said.

“Their wealth is already extreme, and our broken economy concentrates more and more wealth into these few hands,” it said.

To highlight the inequality, Behar cited the case of a woman called Buchu Devi in India who spends up to 17 hours a day walking almost two miles to fetch water, cooking, preparing her kids for school and working in a poorly paid job.

“And on the one hand you see the billionaires who are all assembling at Davos with their personal planes, personal jets, super rich lifestyles,” he said.

“This Buchu Devi is not one person. I in India encounter these women on a daily basis, and this is the story across the world. We need to change this, and certainly end this billionaire boom.”

Behar said that to remedy the problem, governments should make sure above all that the rich pay their taxes, which should be used to pay for amenities such as clean water, health care and better schools.

“If you just look around the world, more than 30 countries are seeing protests. People are on the street and what are they saying? That they are not to accept this inequality, they are not going to live with these kind of conditions,” he said.

Source: New York Post
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Automobiles

Pump Prices to Edge up After Attack on Iranian General, but Long-Term Effect Unclear

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By Jeff Ostrowski, The Palm Beach Post, Fla.

Motorists soon will see the effects of President Donald Trump’s decision to kill a prominent Iranian general. Whether pump prices rise a little or a lot depends on how quickly international tensions intensify.

Florida gas prices climbed an average of 7 cents a gallon in the past three days and could increase an additional 5 cents, AAA – The Auto Club Group said Monday.

The 7-cent increase was coming even before the U.S. air strike Thursday that killed Iranian Maj. Gen. Qassem Soleimani. That hike was a result of a rise in the price of crude oil in December.

News of the targeted killing of Soleimani sent crude oil surging nearly $2 per barrel on Friday. An increase of that magnitude typically translates to a 5-cent hike at the pump, AAA said.

The U.S. benchmark for crude oil traded Monday just above $63 per barrel, the highest level since May 2019. The price of oil makes up about half the price of a gallon of gas.

“What happens in the Middle East can have a direct impact on Americans’ daily lives by influencing what they pay at the pump,” said AAA spokesman Mark Jenkins. “Crude prices rise when there’s a threat of war, because of concerns over how the conflict could hamper supply and demand.”

Oil analyst Tom Kloza of energy firm OPIS agreed that pump prices in Florida likely will rise about 5 cents a gallon in the coming days.

“Then I have a hunch that things are going to calm down,” Kloza said Monday. “I don’t think we’re looking at $3 gas.”

The national average pump price Sunday was $2.585, while the Florida average was $2.526, AAA said.

Kloza expects only modest increases in part because of the timing of the attack. January is always a slow month for gas consumption in the United States.

There’s also the reality that sanctions leave Iran unable to export oil. Complicating the calculus is Iraq’s response to the U.S. attack. The drone strike on Soleimani took place in Baghdad, and some Iraqi politicians considered the assault an affront to Iraqi sovereignty.

While there’s no Iranian oil supply to be disrupted by a war, Iraq is an important producer.

Trump keenly watches oil prices and realizes that a price spike might erode his support in this year’s presidential election, Kloza said.

At the same time, Kloza added, “This president has proven to be unpredictable.”

Trump’s response has been typically uneven. Delivering an official statement at the Mar-a-Lago Club in Palm Beach, Trump’s tone was measured. He said the targeted killing was designed to pre-empt Soleimani’s planned attacks on American diplomats and soldiers.

“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.”

However, over the weekend, Trump took to Twitter to threaten attacks on Iranian cultural sites.

“The United States just spent Two Trillion Dollars on Military Equipment,” Trump wrote Sunday on Twitter. “We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way…and without hesitation!”

##IFRAME_1##Iran has vowed vengeance, but military experts say the nation isn’t powerful enough to wage a direct war against the U.S.

“It’s still far too early to know how much of an impact this conflict will have overall on prices at the pump,” AAA’s Jenkins said.

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Economy

Stocks Rally Despite Impeachment News

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Stocks rose on Thursday as investors looked past the news of President Donald Trump’s impeachment as well as mixed U.S. economic data.

The Dow Jones Industrials advanced 53.85 points to begin trading at 28.293.13

The S&P 500 recovered 4.93 points to 3,196.07

The NASDAQ added 19.39 points to Wednesday’s all-time record, at 8,847.12.

The S&P 500 is up nearly 7% since House Speaker Nancy Pelosi launched a formal impeachment inquiry in September.

Cisco Systems was the best-performing Dow component, rising 1.6%. The consumer staples and real estate sectors led the S&P 500 higher, gaining 0.4% each. Micron Technology shares also contributed to Thursday’s move higher. Conagra shares surged more than 14% and were on pace for their biggest one-day gain since Oct. 16, 1989.

Micron shares climbed 3.5% on the back of strong quarterly results. The chipmaker posted earnings per share and revenue that topped analyst expectations.

On the economic data front, weekly jobless claims fell to 234,000 from 252,000 the week before. However, economists expected claims to fall to 225,000.

Meanwhile, the Philadelphia Federal Reserve’s business conditions index fell to 0.3 in December from 10.4 in the previous month. Economists expected the index to slip to 8.

The Democrat-led House of Representatives voted Wednesday to impeach Trump for abuse of power and obstruction of Congress. Trump became only the third president to be charged with high crimes and misdemeanors and will now face a trial in the Republican-controlled Senate.

Prices for the 10-Year U.S. Treasury were lower, raising yields to 1.94% from Wednesday’s 1.93%. Treasury prices and yields move in opposite directions.

Oil prices gained seven cents to $61.00 U.S. a barrel.

Gold prices moved forward $1.80 at $1,480.50 U.S. an ounce. Copyright © 2019 Baystreet.ca Media Corp. All rights reserved.

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