Breakout

Global Turmoil Threatens America’s Economic Independence

Jeff Macke
Breakout

The news this morning serves as a stark reminder that global turmoil is a clear and present danger to your financial independence. A major shake-up in Portugal's government, Egypt on the cusp of a civil war, and more softness in Chinese manufacturing data are weighing on U.S. markets despite encouraging jobs data.

Mark Luschini, chief investment strategist at Janney Capital says to watch oil for signs that the tensions abroad are impacting American wallets. WTI Crude climbed over $100 for the first time in more than a year. If the price of crude stays elevated it's going to eventually result in higher prices at the pump, reducing the consumer discretionary spending that's been driving what little improvement there is in the U.S. economy.

Related: Market Turns Attention to Jobs, Looking for Clues to Fed Policy

Luschini thinks stock market investors should spend their summer picking away at stocks rather than obsessing over every tick. Stocks have packed a couple years worth of gains into the first six months. At this point the tape needs what Luschini calls "economic validation" that the gains have been justified.

As for the horrible news abroad, China's possible manufacturing contraction is going to be the key to the growth outlook. The world's second largest economy is still officially expanding but not by much. The official Chinese PMI report came in at 50.1% for June but the more credible HSBC manufacturing PMI was 48.2, the second consecutive month of contraction.

Related: Drop in Chinese Stocks Does Not Equal a Weak Economy, Says Karabell

Chinese growth counts as one of the data drivers that will determine when the Fed starts the long dreaded process of tapering its quantitative easing program. "Certainly it isn't lost on Mr. Bernanke and company as to what's going on internationally," says Luschini. If oil spikes, the Chinese economy contracts, Europe goes south again or if Egypt descends into a full-blown war, it's going to hurt American investors regardless of how independent we are.To that list of "ifs" we can add one more possibility: what if investors simply took the summer off and came back after Labor Day? It's starting to look like a decent option.

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