More Downside For US Stocks? Watch Japan.

The drop in US stocks since the start of 2014 is nothing compared to what’s going on in Japan. The Japanese benchmark Nikkei 225 index is off by 11% while the S&P 500 index is “only” down by 4%.

It seems that where Japan goes, the United States follows, and vice versa. John Kosar, President of Asbury Research, says American investors should watch crucial levels in the Nikkei if they want an idea of what’s next in the US.

In recent months, the two indices have been moving together, thanks in part to simultaneous monetary stimulus by the Bank of Japan and the Federal Reserve Bank. Though the size of the BoJ’s monetary stimulus was roughly the same size as that of the Fed’s, it had treble the impact since Japan’s economy is one-third the sizes of America’s. No surprise, then, that while the S&P 500 was up 29% in 2013, the Nikkei soared nearly 57% even after a taking a severe hit in May.

But, which market leads which?

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Asbury Research Subscribers can view our February 5th report, entitled US Stocks Lower Still? What About US Interest Rates? Watch Japan., for more detail and accompanying charts.

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