Back on Feb. 27, I wrote about how “Pricey Oil Will Spark the Next Big Stock Market Plunge.”
This was when oil was trading around $110 a barrel and the S&P 500 was around the 1,425 level.
I wrote about how this ultra-high price of oil would bring down stocks and slow the economy.
As I’m writing this, oil is crashing into the $97 a barrel level due to a sluggish economy which has taken the S&P 500 down to the 1,370 area as a result.
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Another dynamic that I talked about on April 23 was the “Stock Market’s Seasonal Effect Influences the Currency Market.”
It’s the “Sell in May and Go Away” theory. It’s the seasonal slow period for the stock market. It’s when we typically see market slumps from May through at least August or September.
All of this gives an edge to the defensive currencies like the U.S. dollar and the Japanese yen.
But this past week, we’ve gotten even more confirmation that economies all over the world are slowing down in their manufacturing sectors. In fact, just to see how bad it is, I’ve included a visual below.
Readings Below 50 = Manufacturing Contractions
Story continues below chart.
Click to enlarge
In the visual above, notice how many countries are under the 50 level and in a manufacturing contraction. Then consider the ones that are still above 50 but colored in red. That means their manufacturing is slowing down and the reading continues to head lower. For many of those countries, it’s only a matter of months before they dip below the 50 level as well.
It’s just one more confirming factor about how bad the global economy is getting again.
The bottom line: Global demand is slowing down and it’s showing up in everything from the manufacturing data to the price of oil to the level of stock market indices, etc.
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This bodes well for the defensive currencies (USD, JPY) and it will continue to weigh upon the risk-on currencies, particularly AUD, NZD and CAD.
There are other ways to fend off the effect of falling stocks and a sluggish economy. For instance, in my new investing service called the Ultimate Wealth Report, I’ve bought a stock in a beaten down sector and trading under its Book Value and yet pays a hefty dividend.
My latest pick continues to hold in the profit zone while reaping a 4.50 percent dividend yield.
So there are several ways to maneuver through the choppy waters ahead. You can buy up the defensive currencies or you can buy stocks that are cheaper than their liquidation prices and yet kick off some nice cash to you every year in the form of a dividend that outpaces the rate of inflation.
But for the upcoming months, it’s time to think defensively. Don’t let your hard-earned wealth evaporate away.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.
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