There are two worries in this market, not one, and I don't want to minimize one for the sake of the other. Last night, I talked about how the froth, the action in the alternative-energy fuel-cell stocks, as well as the common stocks of Fannie Mae and Freddie Mac, was deeply worrisome. You can't have a side-by-side market where there's immense froth in one subsection of the market and health in another. Just like in currency, the bad drives out the good, and froth can trump sanity in a heartbeat, as we know from 1999 to 2000. Of course, it can stay frothy for some time, so you can say, "Aha, there's froth, let's go." But you do have to be alert for it.
However, my colleague David Faber reminded me this morning of the other worrisome component, not in the stock market, where I am concerned about irrational trading, but in the real economy, where we need to keep an eye -- if not both eyes -- on the weakness in the commodities.
The weakness in commodities stems directly from the slackening of demand from China. We never really know how well China is doing, and we have learned not to trust the various indicators and projections. But we do know that the price of copper, the most visible commodity, has been just crushed here, and that has been the thermometer for China for as long as China has been a growth country.
I follow the price of copper by using the iPath Dow Jones UBS Copper Total Return Sub-Index ETN (JJC), and it has fallen from $41 at year-end to $35 and change this morning. That's an extraordinary selloff. If China is the primary user of the material, then we know that something is very rotten in China.
Now we know that China is powerful, but it can't pull down the whole world. The U.S. has been strong of late, other than the weather-related pause. Europe has been coming back. However, today we saw some weakness in industrial production over in Europe. Don't forget that 25% of Chinese exports go to Europe, so weakness in China can signal weakness in Europe.
We can handle one of these two being weak, but not both. So we must be concerned that the economy around the world is slowing. That would mean that there could be a further rollback in the industrial stocks that led us higher last year but have really floundered of late.
It's not just copper.
It's oil. Today, oil is falling again, and when you see both oil and copper fall, you have to bet that the slowdown is for real.
Now the optimists would say, wait a second, that's West Texas Intermediate that's falling, not the world price, so don't write off oil just yet.
But it doesn't matter. Markets are about perception, and oil is adding to the perception that things are slowing.
Now layer on still one more barometer of economic slowdown: Treasuries. They are rallying, and that means rates are going down, and there's no way that rates can fall as they are if the economy is strengthening.
Now I am heartened that some of the speculative names are coming in today. FuelCell Energy (FCEL) has reversed from a higher price. Same with Ballard Power Systems (BLDP). Plug Power (PLUG) is still up, but it was totally pole-axed yesterday. Fannie and Freddie are being killed again, although, alas, Tesla (TSLA) is being Tesla.
But we need to see the economic growth story to brighten, even if it is at a slow pace, to keep the momentum of this market going, momentum that seems to have gone lost.
Copper, oil, bonds: They all say the momentum is lost. So even though the froth is becoming, well, less frothy, the worldwide economic backdrop has turned more negative than it was not that long ago.