Financial Elite Propping Up the Stock Market for Obama's Re-election - It's the Economy Stupid

How Long Can U.S. Stocks Stay Insulated From External Pressures?

March 22, 2012

Breakout - Today it's a slowdown in Chinese manufacturing data. Tuesday it was word from BHP Billiton (BHP) of slack iron ore demand from the world's biggest raw materials consumer. A week ago it was an increase in their national gasoline price, and prior to that, Beijing's 7.5% GDP target, which marked an 8-year low.

And yet, through it all, the S&P 500 has been able to continue its ascent; oblivious to the creeping world of worry that is haunting the East, insulated from the economic ooze of a European recession, in spite of ominous gasoline prices that have shot above $4.00 a gallon.

Yes folks, it's the Great American Recovery and Bubble of Average Growth Expectations or GARBAGE Rally. We've gone full-domestic and there's no turning back now from our consumer-led, homegrown rally of relative strength.

It may not make perfect intellectual sense, but you know what, it's working and stocks are up 30% in 6 months.

"What we see in America is what matters," Macke says in his opening statement in the attached video. "We're the global growth engine of the world all over again, sort of by default."

So here's the deal, we know about the China and Europe slowdown stories, and the more investors flee those markets - and currencies - the better the domestic story looks...to a point. Admittedly, the U.S. cannot exist in a vacuum, but if you had to pick one sector that was most immune from the vagaries of the global economy, you'd have to go with the Consumer Discretionary sector (XLY).

What's interesting is that over the past few days, when the S&P 500 is been feeling threatened, the Discretionary sector has been the stalwart, and prior to today, was up 0.8% this week. Furthermore, and perhaps even more indicative, is the outperformance of the Retailers (XRT), up 1.8% this week, making it the top performing industry of 24.

That's all well and good on a rear-view basis, but it is also the place to watch for fault lines going forward. In a nervous, toppish-looking, market that has been able to thwart every sell-off attempt for three months, it is my belief that if we see the Discretionary, domestic trade buckle, it will mark a significant turning point. Specifically, that investors are succumbing to the notion of a world of risk and that the GARBAGE rally is about to take on new leadership in the form of Defensive stocks.

For now though, the dip appears modest, with the ghosts still locked away.

See: S&P retakes 1,400 for first time in 4 years