Another concern that arose on Monday was continued evidence of slowing in the Chinese economy. In China, the industrial production for August increased at its slowest pace in more than five years, as did the retail sales metric. Consumer spending is a significant part of the Chinese government’s 10-year plan, so any weakness here is a red flag. The OECD pegs China to grow at 7.4% this year, followed by 7.3% in 2015, which is not the trend we want to see.
Moreover, the OECD estimates that Japan, despite its massive stimulus strategy, will see its GDP growth come in at a mere 0.9% this year and 1.1% in 2015. Clearly, the government increasing the sales tax to help fund its aggressive monetary plan is hurting the GDP and will impact the stock market.
So here’s the deal: In my view, there is no catalyst for the stock market to rise higher at this time. Investors should watch for a potential downside stock market correction that they can hedge against through the use of put options on stock positions on the key stock market indices.