U.S. Investors Are Losing Their Balance
One by one, Wall Street investors are losing legs to stand on. A reflex rally such as the one seen on Friday can do wonders for short-term sentiment on Wall Street, but investors need a reason to keep buying.</br></br>With the Dow Jones Transportation Average and the Dow Jones Industrial Average both showing signs of medium-term weakness, what started out as a fleeing from riskier assets is starting to evolve into fundamental weakness.</br></br>One of the basic tenets of the century-old Dow Theory of market analysis, which assumes in the long term that the economy drives the stock market, is that both the industrial and transport indexes have to conform each other's trends. That is based on the premise that Dow transports have a symbiotic link with the Dow industrials, since the industrials make the goods the economy needs and the transports move those goods around the country. Basically, to have a balanced economy one can't work without the other.</br></br>Investors relied on continued strong growth in China and the strengthening recovery in the U.S. to cushion the blow to U.S. stocks when the European sovereign-debt crisis first started to unfold. Over the last couple weeks, however, China's stock market transitioned from just underperforming to an outright downtrend. And recent data suggests the U.S. recovery may be slowing.</br></br>After the Conference Board's U.S. Leading Economic Index unexpectedly dipped in April for the first time in more than a year, Conference Board economist Ken Goldstein said the economic recovery will likely continue but "it could lose a little steam." Don't forget overly tame consumer inflation and shaky housing data for April. And the minutes of the Federal Reserve's last policy-setting meeting revealed that some members expressed concern that the crisis in Greece could spread to other European countries and eventually slow the U.S. recovery.