Historically, investors, especially American ones, like to think that global markets take their cue from what’s happening in the American stock market, which is the largest in the world. If American stocks start falling due to American concerns, then the rest of the world follows its lead.
This may have been true in the past, but most recently it’s not so clear. As a chart from Waverly Advisors’ Macro Report shows, the Chinese stock market has actually been a leading indicator over the last few years for both U.S. stocks and global commodities, as shown below.
While correlation doesn’t always imply causation, traders have to admit that recently it’s as if markets around the world have taken their cues from stock market confidence gauge in Shanghai. The performance of Chinese stock market speculators has been leading key turning points of both U.S. stock and commodities portfolios, and not vice versa. Note Shanghai’s peak and trough in 2007 and 2008 respectively, in orange:
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