The second-longest running soap opera As the World Turns  lasted 54 years, but had to finally turn off its tacky lights in 2010 because of low ratings. In a similar fashion, the long-lasting 8-year leadership of US-based assets are flickering off because of bad ratings due to a bad script.

That’s not to say the actual bull market is over here in the States, but leadership is turning to Europe which can be attributed to the political crises playing out on Capitol Hill. This shift is occurring even though leading economic indicators in the US are strong and the chances of a recession are low. Unemployment figures and the LEI Index (Leading Economic Indicators) are all robust.

The Macron victory in France has been the catalyst and stabilizing influence underpinning the move to Eurozone stocks and the Eurodollar. To date, big cap Eurozone stocks are up almost 17% YTD versus 6.6% for the S&P 500. The Euro is up over 6% against the dollar despite Brexit. However, alternative currencies such as Bitcoin went ballistic amid the political turmoil.

Highlighting just how fast the narrative that drives markets can shift from financial data to something else, this Wednesday US stocks plummeted 1.5%. Finally, the political risks the markets had been ignoring took center stage.

Additionally, while most of the world was focused on the US (with the FBI investigation of the Trump administration accelerating), a true meltdown occurred in Brazil when its political soap opera sunk its stock market 16 % overnight. The new episode is a virtual repeat of an earlier one with the new president accused of corruption, just like the one he replaced.

Market internals here in the US continue to weaken and the gap from Wednesday’s move down is still intact. The key relationships we watch, such as utilities and Junk bonds, are still showing risk-off. Friday’s action helped the Dow move into an unconfirmed bull phase, but doubts still linger. A lot rests on the results from the Trump visit overseas.

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