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Trends are independent; market trends may move together, but they move for different reasons

Sometimes trends continue for so long, people start to think they are not only moving together now but have always done so. For example, ask most people what will happen to stock prices if interest rates are raised, and they’ll tell you that stock prices always fall when interest rates rise.

However, interest rates rose steadily from the early 1990s to early 2000, up to that time the greatest bull market in U.S. stock market history. Likewise, stocks and interest rates rose in tandem from 1942 to 1966, a solid twenty-four years. Many more correlations people think exist are really just two trends moving in the same direction for a long time.

Thus, many people believe that two markets seemingly tightly interconnected today must always be so. Don’t believe it. Right now, the world seems so incredibly interconnected, and the U.S. economy at the center of it, it’s hard to imagine the U.S. economy tanking without taking the rest of the world with it. There is good reason to be apprehensive about the U.S. economy and, indeed, those of many advanced economies of the world. Their governments are deep in debt and have overpromised on retirement benefits.

Increasing regulation in the United States and European Union also has a throttling effect on growth. And some analysts with very different approaches to markets, like Doug Casey, Bill Bonner, and Robert Prechter, are calling for the mother of all depressions, at least for the United States and advanced economies.

Looking at Africa, almost thirty countries have stock markets, and there is great variety among them in terms of current trends. Nigeria’s stock market, for example, looks like it is in a bull market, whereas South Africa’s is trending lower. From my point of view, as someone who takes an Elliott Wave perspective, the bullish trending market is reflective of a positive social mood, suggesting economic expansion and investment opportunities. Of course, there are many factors, like the degree to which a society enjoys economic freedom, that will affect how things unfold in a particular country.

So, to tie this discussion in with the article title, the bad news is that to the degree that African markets are connected to the markets of Western and other advanced economies, it could be rough going if those countries hit the skids, as some keen observers are predicting. The good news, however, is that all markets should be analyzed independently.

Things that seem to correlate could simply be moving together for the time being but then diverge at some point. In addition, as the saying goes, there’s always a bull market somewhere. Opportunities always exist if you keep an eye out for them. Remember the sell-off in 2008–09? Not everything sold off. Netflix, for example, soared during the market crash. And so it will be in Africa. We’ll keep our eyes out and alert readers to opportunities as we see them. Vigilance and preparedness are key.


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