Over the past month and a half, a slew of indicators – from Apple to Netflix and raw material manufacturers to chip makers, have signaled that expansion in major economies maybe decelerating. The concern is that equities and credit, already battered by trade wars, valuation fears and rising rates may be poised to deteriorate further before year end.

This past week, in addition to Nvidia’s quarterly results adding the semiconductor market woes, data from the housing market suggests that it too has gone soft, acting as a further drag on the overall economy. Sales of new single-family homes were down 22 percent in September from their recent high in November 2017, and existing home sales in September were down 10 percent.

Given importance of housing as an indicator to the health of the broader economy, its slump has frequently been a major factor in past corrections and is a wake up call for anyone hoping the good times will last.

Future Wealth’s View

While Californians are only now complaining about bad air this week, we have been smelling something bad about the stock market since late September and have written ad nauseum since – recommending that investors reduce their exposure to equities and credit and increase defensive holdings.  We continue to believe that the world economy has lost some steam in recent months and is likely to slowdown much further before the end of the year.

While most pundits initially looked past this paradox of a strong economy and a weakening stock market, we suspect that a terrible Q4 earnings season combined with softness in housing market, will likely make many of them reconsider their bullish thesis on the stock market.

The one bit of advice we, at Future Wealth, will share from our years of covering the semiconductor market as equity analysts on Wall Street – Semiconductor stocks typically lead the overall market both through boom and bust cycles. We will now rest our case.