February 21, 5:00 pm EST
We’re seeing some more December economic data that reflected the souring of economic sentiment from the sharp decline in stocks.
It started with retail sales last week. Stocks dipped immediately on the bad data, which proved to be a valuable buying opportunity. Today the bad number was December durable goods. These tend to be large investments that reflect optimism and these expenditures become the first to be delayed when that optimism wanes.
But less than two months later, and we have the v-shaped recovery in stocks. Expect this data to bounce back just as sharply.
We continue to get signals that some form of agreement will come from the latest round of U.S./China talks. As we’ve discussed, some of the best signals are in the commodities markets.
Remember, to end last month, we talked about the setup for a big run in commodities this year. Crude oil was up 20% in January. It’s up another 5% already in February. Copper was up 6% in January. It’s up another 4% this month. And copper is the commodity known to be an early indicator of turning points in the economy.
With this in mind, assuming we get resolution on China, and a continuation of trend growth in the U.S., we should expect this commodities rally to be in the early stages. And that should make emerging market stocks among the most attractive on the year. At the moment the MSCI emerging markets index is performing only in-line with the big developed stock markets.
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