I want to show you a real interesting chart that shows that a major trend change took place last week.
It is a chart of the S&P 500 in red with the VEU ETF in black.
This is the Total Vanguard All World-EX US ETF. It’s an ETF for the world outside of the US.
As you can see from this chart the performance of this ETF and the S&P 500 were closely following one another until June.
When June came and the SPX 500 rallied this ETF continued to drop.
What happened was that the US stock market went higher while the rest of the world went lower.
This breakaway of the US stock market from the rest of the world began when Trump launched his tariff war against China.
It also began as the US dollar also moved higher.
In fact the US dollar had been trending down for over a year until this June when it rallied along with the US stock market as the rest of the world went lower.
This action in the markets made me think that the US stock market could go up into the end of this year if these trends continued.
Going into September the most obvious trend of all was the bear market in emerging markets. It was causing some foreign money to go into US assets and the US dollar, which setup a trend of the US as acting as a safe haven market for investors in these troubled nations.
But instead of continuing twelve months or more this trend only lasted for four as last week the US stock market’s divergence from global markets came to an end as they both fell together.
And the US dollar weakened too and gold turned up last week.
The economic component of the Trump administration “Make America Great” program has been tax cuts and an increase in government spending, particularly in the defense industry. Both have helped to boost economic growth over the past year, but together have also generated an $898 billion dollar budget deficit so far this year in the month ending in August and will be on track to create a trillion dollar deficit next year.
Such deficits mean more Treasury bonds are going to have to be issued and pose a long-term risk of a bear market for bonds and higher interest rates.
Of course Trump did not create the massive government debt generated by the United States government over the past few decades, but his programs are going to grow it faster than even Presidents Bush and Obama did.
However, I believe in June a new program we can call “Keep America On Top” was launched by Trump with its main mechanism being tariffs to strengthen the US dollar and push global economies down. By doing so the risk of higher deficits in the US could be ignored by investors if those dangers are growing worse elsewhere even faster by attracting foreign capital into the US.
That program seemed to be working until last week.
And that fact is making gold come alive as a global safe haven instead of US bonds or the US dollar to the benefit of mining stocks.
Big swings in the markets do indeed create big opportunities for people who are positioned correctly in the right sectors.
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