Debate between hardline bears and bull market enthusiasts keeps coming back to concerns over a looming recession with one side pointing to the ongoing slide in manufacturing and the other to a strong service sector.
“It really is an interesting dichotomy, because the bifurcation between the manufacturing and non-manufacturing (sectors) … has been one of the largest spreads I’ve seen,” Kurt Kallaus, a commodity futures trader and author of Exec Spec, told Financial Sense Newshour in a recent interview.
Kallaus points out that the service sector represents a much larger portion of the US economy, with manufacturing carrying far less weight as a barometer for future growth.
Since the non-manufacturing (service) sector is doing quite well, Kurt believes the US will maintain its current growth rates “with the potential for some mild acceleration as we move into the second or third quarter of next year.”
Kallaus also believes most of the downward move in oil and commodities has likely played out with a bottoming process taking shape between now and the early part of 2016.
When it comes to the stock market, the "longer-term picture I think is still on the upside,” Kallaus said. “I am optimistic that we will still move higher next year, but over the near term I’d say (we’ll see) more of a trading range (in the general market).”
The biggest risk is if oil falls too far into the mid- to low-30s, since this would signal more anxiety and panic in the energy sector that could trigger sell-offs in the general market, Kallaus explained.
While still liking technology, he noted that manufacturing has been very beaten down. Take the contrary mindset, he suggested, adding that he thinks we’re more likely to see potential bargains emerge sometime in the first quarter of 2016 in this space.
“The question is, where do you stick your powder in the market?” he said. “When things are most dire … that’s usually when the best bargains appear.”
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