April 17, 2020

Is The Chinese Economy A Predictor For The U.S.?

Is The Chinese Economy A Predictor For The U.S.?
Is The Chinese Economy A Predictor For The U.S.?

The Coronavirus originated in and hit China first, so it should be expected that the Chinese economy could be used and will be used as a predictor for the U.S. economy moving forward. After all, we are talking about the two largest economies in the world.

Since the mid-1970s, the Chinese economy has had more than four decades of unbroken gains, an incredible run, increasing its domestic economy by roughly a hundredfold and transforming the global economy in the process.

But that winning streak came to a sudden and shocking end Friday. China reported a -6.8% year-over-year contraction in its economy for the first three months of 2020. That’s the first quarterly decline in the gross domestic product since official record-keeping began in 1992 and likely the first since Mao Zedong died in 1976.

That should be quite a warning to the U.S., especially after U.S. retail sales dropped by a record -8.7% in March from the previous month, the most significant decline since records began in 1992. Some of the largest drops came in discretionary purchases that have supported China’s exporters for years. That included a -25% sales drop at furniture stores, a -16% drop in sales at electronics stores, a -51% drop in sales at apparel stores, and a -23% drop in sales at sporting goods stores.

But remember, the U.S. is behind the Chinese economy by a couple of months when it comes to the Coronavirus and shutting down our economy. So, we have yet to feel and see the full weight of shutting down our economy. I fear that the worst is yet to come, which makes you wonder why the market is looking at positing back to back weekly gains.

However, INO Contributor, Matt Thalman, proposed a potential bright spot for investors earlier in the week with his article Now May Be The Best Time To Invest In China suggesting that as the Chinese economy comes back online, there will be a rush to the stores by the Chinese people which will provide rapid recovery.

Key Levels To Watch Next Week:

Every Success,
Jeremy Lutz
INO.com and MarketClub.com