That’s because as I have pointed out in previous Money and Markets columns, for stocks to go higher the world needs economic growth. And currently I don’t see a lot of growth.
Another troubling sign of a slow growth environment is the recent performance of the U.S. index of small companies, the Russell 2000, as shown in the chart below, which has been suffering through a correction this year.
The Russell 2000 could be sending an alert that we are on a collision course for a major selloff across the entire global stock market.
That’s because smaller companies are much more sensitive to the underlying economy. As such, they are often a very useful bellwether for the equity market as a whole. This was proven in 2009 when they were the first and fastest to recover from the financial crisis.
And the performance of smaller companies could be sending us the opposite signal now.
For now, be vigilant and guard your capital.
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