Fisher Investments Reviews the Global Economy’s Wellbeing
Fisher Investments Market Perspectives
By Fisher Investments' Corporate Communications Group — 9/18/2023
Investors have faced many fears about the global economy’s health recently. Inflation worries gave way to concerns about a possible recession. Interest rate hikes made investors dizzy. A potential “banking crisis” practically gave the market seizures. However, when you scrutinize the “symptoms,” the idea of the economy’s failing health just might be a case of investing hypochondria.
A slowing economy doesn’t automatically signal trouble for stocks. That’s according to Ken Fisher, the founder, Executive Chairman and Co-Chief Investment Officer of Fisher Investments. He made this point in his September 2023 article “What’s Happening With the ‘Goldilocks Economy’ — And What It Means for Your Stock Portfolio.”
In this article, we’ll build on Ken’s thoughts to examine the economy’s current fitness level and diagnose what it could mean for markets in the future.
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A Slowing, But Growing Economy
The global economy has been slowing, but economic growth appears to be holding up better than widely believed. That’s one reason the market has rallied, in our view. The global economy expanded 1.5% in the second quarter of 2023. The International Monetary Fund (IMF) forecasts 3.0% growth for 2023. That’s not gangbusters, but it’s far from recessionary. The table below shows the recent progress of global gross domestic product (GDP) readings. Even though some economies experienced small quarterly contractions in 2022, that has still translated into a return to more normal growth levels in 2023. Keep in mind, though, GDP is a historical measure with little predictive power about stocks’ future direction.
How Services and Manufacturing Indicators Stack Up
Some recent economic indicators also suggest the global economy has been more resilient than many stock market hypochondriacs expected. Purchasing managers’ index (PMI) reports are economic signals derived from monthly surveys of private-sector companies. PMI readings above 50 indicate more firms are expanding. Readings below 50 suggest more contracted. The chart below shows the overall composite of global PMIs (purple line) has been above 50 for most of 2023. Strength in services PMIs (green line) has been largely offsetting weakness in manufacturing PMIs (gold line). That’s normal in today’s services-led world.
How Stocks React to GDP Growth
Slowing global economic growth may worry investors who assume strong stock returns require robust GDP growth. However, stocks can do just fine when the economy is expanding, regardless of magnitude, as the following chart shows. Stocks typically make long-term upward progress unless the market anticipates an economic recession. Today, most major economies, including the US, continue to grow at a modest pace.
We caution investors against solely focusing on backward-looking GDP figures. Signs currently point to a healthier economic reality than dour expectations suggest. A recession is always possible. Even if one did hit, we believe that all the market hypochondriacs forecasting one since early 2022 have likely sapped the surprise power to move markets. For now, we think stocks should enjoy an economy with a clean bill of health and the gains that typically come with it.