Wall Street Puts Up A 'For Sale' Sign

Wall Street up; London up. Wall Street down; London down. The two markets, in short, generally move pretty much in lockstep -- and certainly do so in terms of major movements driven by macroeconomic and market fundamentals.

Consequently, for the typical retail investor, there are relatively few opportunities to significantly profit from switching investments between London and Wall Street.

Sure, plenty of people hold American stocks, ETFs and funds -- but the decision is generally one driven by longer-term considerations such as asset allocation and diversification. In other words, an opportunistic move it usually isn't.

But might just such an opportunity be on the cards? The signs are very promising.

A tale of two cities

Consider the contrasting economic news coming out of London and Washington. As we reported a couple of weeks ago, the UK's second quarter rise in GDP was around double the figure that analysts had been expecting.

Fiscal tightening and public sector cuts will act as a brake, to be sure, but no one is seriously expecting a return to recession or a sustained period of zero growth.

In the United States, observers aren't so sanguine. In contrast to the UK's Q2 growth, for instance, America's Q2 GDP growth came in at an annualised 2.4%, below expectations of 3.0% or so. Consumer spending rose only 1.6%, and previous estimates of consumption were revised down.

And after recovering somewhat, construction spending inched up only 0.1% in June, and appears to be levelling off, says Patrick Newport, an economist with IHS Global Insight. Private sector construction declined 0.6%, in fact, with the overall figure being bolstered by better-than-expected public sector construction.

What's more, figures released yesterday showed that petrol inventories unexpectedly rose last week, prompting fresh fears about economic recovery. A rise in the jobless figure is also widely expected.

The political mood, moreover, is swinging towards a sharply lower level of fiscal stimuli. From three thousand miles away, it's easy to dismiss the Tea Party movement as wild-eyed extremists. What can't be denied is that they're winning votes, and public support.

And if America does turn down -- and the UK doesn't -- expect Wall Street to go one way, and the FTSE another.

It gets better

The icing on the cake comes in the form of the dollar. Over the past couple of months or so, it's weakened precipitously. Not just against the pound, but against a whole basket of currencies.

Today, the dollar is at $1.59 to the pound. In mid-May, it was $1.43 -- an 11% swing.