Fisher Investments Editorial Staff
GDP

All Is Never Well

By, 10/27/2010
 

Story Highlights:

  • The UK economy added to last quarter's strong growth with another unexpectedly healthy quarter in Q3.
  • Rampant negativity despite fine fundamentals is a global fact and makes for a great time to be bullish.
  • The US may follow the UK by surprising the negativity. But it doesn't have to—firms are lean, and there's more than enough growth happening globally.      

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Preliminary UK Q3 GDP posted 0.8% growth over Q2 (+3.2% annualized). A perfectly healthy result on its own and a nice follow up to last quarter's 1.2% q/q growth (4.9% annualized). But importantly, the reading doubled expectations of +0.4% q/q growth. No one's believed in the British economy all year, yet it has consistently outstripped expectations. Such rampant negativity despite fine fundamentals is a global fact and makes for a great time to be bullish.

 

Naturally, the world isn't perfect. But that still may not be enough to spurn stocks. Many well-publicized problems simply lack the power to end the bull market. Here are a few economic positives you don't have to believe to be invested in global equities now: 

1.     You don't have to believe economic growth will be gangbusters. It's a rare occurrence (typically associated with young bull markets) that expectations are this dour and pleasantly surprised so easily. Take advantage while you can. 

2.     You don't have to believe corporate revenues will soar. When firms are this slim and grim, they can make consistently solid earnings on cost cuts. Even moderate revenue growth goes straight to the bottom line. 

3.     You don't have to believe the US can lead the world. More significantly sized regions are capable of fueling growth worldwide than ever before. If investors aren't looking abroad, they're making a mistake.

 

Much scrutinized US GDP is due out this Friday. Will last quarter's net exports drag reverse? Will the rest of the economy continue strongly positive? Maybe. We'll not speculate, and here's why. The UK's positive news tells us it doesn't take much to outstrip expectations these days.

 

Even modest US GDP growth could pleasantly surprise markets. But it doesn't have to—growth is growth. US corporate earnings are set to continue their historically strong showing in Q3 (76% of 159 reporting firms have positively surprised expectations by a median factor of 5.9%). And the US and UK together contribute only about 30% to the global economy. The vast majority of economic growth happens elsewhere—Emerging Markets for instance. EM leader China showed impressive economic growth continued in Q3 (+9.6% y/y). Other EM countries are likely to follow.

 

Stock investors can be an opinionated bunch. And there is always heated debate over what will tank markets next. Happily, investors never have to believe all is well in the world because it never has been and yet the market's risen. Waiting for a perfect world guarantees a less-than-perfect portfolio.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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