Fisher Investments Editorial Staff
Globalization, Developed Markets, Forecasting, Market Risks, GDP

Astonishingly Average

By, 12/03/2010

Story Highlights

  • Eurozone annual GDP is widely expected to grow 1.7% in 2010—roughly equal to the average since 1996.
  • Given the drama, just average may pleasantly surprise many investors.
  • 2010 is a great example of a year when it was better to stay invested in stocks than try to dance around the sentiment-driven volatility.

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Sovereign debt default fears have besieged the eurozone all year long. A messy euro breakup, the worst case scenario, would have been a dangerous outcome. But we believed the worst case to be less probable than most. So far, the PIIGS have made a lot of smoke but much less fire than expected. Eurozone annual GDP is widely expected to grow 1.7% in 2010—and that turns out to be just about average going back to 1996. Sometimes a picture is worth a thousand words.

 

Source: Thomson Reuters

We all know it hasn't been "just another year" in the eurozone, and the distribution of GDP growth is far from even across the region. But just average aggregate 2010 growth might pleasantly surprise many investors given all that's happened this year. Here at Market Minder we limit our market forecasts to 12 months out, because it's very difficult, if not impossible, to accurately look out longer. Bad things often happen now but are delayed from globally impacting economies and markets until later, and sometimes, by then, all the premises have changed and we have to adjust our forecast accordingly.

The euro crisis is a great example. Europe has structural problems yet to be fully worked out. The risk of a bear market fuelled by a disorderly euro breakup still exists. And maybe bailouts and bond buying are just delaying the inevitable. No one can know for sure (though we all have our opinions). But what happens years from now doesn't really matter to markets in the near future. Investors only need to figure out whether a given risk will have significant impact within their forecasting period. And agree or disagree with the policy's ultimate wisdom, the euro bailout and the European Central Bank's actions lowered the likelihood a breakup would actually happen in 2010. Consequently, it was better for stock investors to remain fully invested than try to dance around the sentiment driven volatility.

We can check that hypothesis against the facts—euro growth may have been more without the crisis (no way to know) but it certainly wasn't drastically reduced or reversed by it. And same goes for the global view. In all, global stock markets look to be headed for a decent annual return. Many years from now when market historians look back at 2010, on paper, it'll seem like just an average year for Europe. But those of us that lived it will remember it was a year wrought with largely unfufilled worry and overwhelmed by a slew of little appreciated positive fundamentals.

 

*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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