David Sluter
By David Sluter on August 25, 2015

What to make of the Recent Dramatic Stock Market Fluctuations?

stocks oil china and the US Economy

The stock market fluctuations the past few days has many holding their breath and wondering what the impact on the economy will be. I am not an economist but after experiencing three recessions, I have a longer term view of the business cycle and I believe that market fluctuations are not an accurate way to predict future economic conditions. My reaction to the past week’s events is to take a breath and let things play out.

I received the subscriber bulletin below in my email this morning from ITR (Institute for Trends Research) Economics and thought it might be worth sharing. I have been following their economic forecasts for over fifteen years. ITR accurately predicted the downturns of 2001 and 2010 more than a year in advance which helped me make early adjustments to my business planning and operations. ITR Economics is based in New Hampshire and works with its customers to help them manage their businesses through the business cycle.

The following excerpt takes a deep dive into the devaluation of the Yaun:

Stocks, Oil, China and the US Economy

“A chain of events culminating with China’s recent currency devaluation and follow-on decline in commodity prices/share prices across the globe has created fear and consternation for decision makers. The view to the future is not as clear as it was a few days ago. A more detailed analysis of what is going on and what it means will be in this month’s ITR Trends Report but here is the synopsis:

We think the S&P 500 is correcting and not entering into a full-fledged bear market based on current economic fundamentals.

The Chinese yuan is down 3.1% against the US dollar. Devaluation may help China’s economy but only if the US and Europe economies continue to grow. Growth in the US and Europe is critical to what the global economy will look like in 2016.  We think the prospects for the US and for Europe on balance are favorable.  The US consumer is providing the horse power for ongoing economic growth here in the US.  The good news in the housing industry also augers well for the 2016.

Oil prices and overall commodity prices moving lower is a problem for many companies, but not for the consumer, so overall impact on the US economy is positive.

The weakness in US Non-defense Capital Goods New Orders is our single greatest area of concern. Business-to-business entities should be playing defense.  Watch your cash projections closely and be careful with credit terms as receivables are likely to start going long on you.

We are awaiting August data for US Total Industrial Production, New Orders, and Retail Sales in order to quantify the fallout from the S&P 500 dropping 10.1% to date from the May record high.” 

Published by David Sluter August 25, 2015
David Sluter