Fisher Investments Reviews Its Outlook for the Global Economy

Transcript

Michael Hanson:

You should expect a world of more normalcy than most people can perceive. We don't expect that necessarily the economy to accelerate ever, ever higher. What we expect within that, though, is to see some real pockets of pent-up strength.

Interviewer:

What's our view for global economic growth and corporate earnings this year?

Michael Hanson:

Well, I've given this explanation lots of times now. I find that the best way to do it is to sort of tell it as a story. But I'll tell you what the punchline is, or the moral, of the story. The story is normalcy, and normalcy that people just have no ability to see because for the last 3 to 4 years we've been conditioned to think that we're in abnormal times. People always kind of think that. But that's really been true. So let's just take it from one step to another in very short order. Pre-Covid, we had a world that basically did this—growth was moderate throughout the world. It wasn't anything to get excited about. It was also nothing to sneeze about: The global economy growing at around a 3% pace. Covid happens. Recession globally—not nearly as deep as people thought by the way, and I want to get back to that because the resilience of the economy is something that people always underestimate. So we have a recession but it's about 3%, not nearly as big as I think it felt. Then you have a reopening, which is in fact bigger than the recession— especially in terms of percentage magnitude, which tells you something that I'm going to get back to as well.

Interviewer:

How big was it, Michael?

It was to the tune of 7%, just shy of it for that next year. And so one of the things you see from that is resilience on the way down, and really what was some pent up activity heading out. So that gets us into this territory now where we had this huge reopening. People's expectations did get fairly high and I do think that's one of the reasons why we had a bear market. It was a shallow, relatively-short bear market, but it was the comedown from a big reopening. And now here we are. And the interesting thing about it is that if you look at a chart, and we'll put this up I'm sure, after the big reopening we go straight back to the trend we had before. We've actually had normalcy in a way that almost no one can see. And that's really the punchline. And that's really the part that matters the most at this moment.

But I want to go back to a couple of concepts. We said that anticipation was mitigation, and when we said to people we didn't think there would be a recession last year it was because prices are signals. People were alerted to the notion that there was danger and, as a result, took action. You know, contrary to the way people think, there is no such thing as a "fait accompli" in the economy. You can react. You can adapt. People did and as a result they mitigated the danger.

Well, what's the redounding feature of that? After taking about a year off from doing a lot of investment, there's now pent-up activity. In fact, I see a lot of people that are real pent up out there in all ways. CEOs are the same. If you take a year off from doing very much, at some point you got to start opening up the purse strings again and start doing some spending because this is a competitive world. They have shareholders to answer to. And they're going to be looking for ways, once the coast even looks somewhat clear, to start investing again. And that's exactly what Jeff was alluding to earlier, that we're looking for where the CEOs see the opportunities. That's going to be in the stuff that you can get going pretty quick: ad spending, business travel, IT spending in general which actually there needs to be a lot more of it. Yet people have even put that off a bit. Those are the types of opportunities we're looking for. And so the sum of it all is that you should expect a world of more normalcy than most people can perceive. We don't expect that necessarily the economy to accelerate ever, ever higher. What we expect within that, though, is to see some real pockets of pent-up strength.

Interviewer:

Yeah, those green shoots that we talk about.

Michael Hanson:

Absolutely. Yeah.

Aaron Anderson:

I'll add, maybe, I think one of the effects of that is it just creates more opportunities in different areas. If you just think about that backdrop, we talked a little bit about the Magnificent Seven before and maybe just say generally big kind of growth-oriented companies. You could argue that they're very well suited for that environment. It's a good economy. It's not a booming economy. From here, interest rates probably look fairly benign. We've seen some nice improvement in inflation rates. If you think about that as a backdrop for 2024, well that usually means big, high-quality companies that can grow relatively quickly get bid up in that type of an environment, because when you're not getting a lot of juice out of the economy itself—it's a fine economy, but as I said not booming— that's a pretty good backdrop for companies that can grow above and beyond just what the economy is doing.

But I think, as Mike alluded to, there's still a lot of upside surprise in the economy here. Not only are expectations still low —yes, recession worries aren't as intense as they had been back in 2022— but they're still there. And so just the fact that the economy keeps humming along, I think is a nice upside surprise for many. And with a little extra boost, maybe from increased business spending and so forth as companies go on the offensive, I think that leaves some room in the portfolio for what you might think of as the more cyclical categories. The types of companies and industrials and other categories: materials, resources that are tied into a stronger than expected economy. And so whereas over the last few years there's been big spreads between how growth stocks are doing and how value stocks are doing and so forth. This is a year where I think there might be room for both.

Voice of Ken Fisher:

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