Fisher Investments Editorial Staff
GDP

Do Investors Fear Faster Growth?

By, 01/15/2015
Ratings364.569445

The World Bank slashed its 2015 global forecast Tuesday evening, and markets globally wobbled hard on Wednesday—leading many media outlets to connect the dots  and presume the World Bank’s move is Very Bad News . As always, it’s impossible to say what drives any day’s volatility. Maybe slow-growth fears did cause Wednesday’s wiggles, in which 10-year Treasury yields shed a few basis points[i], 10-year German yields dipped to 0.47%, global stocks fell -0.8% and copper dropped -5.2%! Or maybe not. Either way, the connection suffers a logic problem: The World Bank’s report isn’t bearish or even really slow-growthy.

The World Bank expects global GDP to accelerate. Grow faster. Not slower. Not shrink, stagnate or slump. Headlines focused on the fact the bank cut its 2015 growth estimate from 3.4% to 3.0%, but that 3.0% is higher than 2014’s 2.6%. It would also be the biggest bump in global growth since 2010. The World Bank is apparently darned bullish, folks—not warning of a weaker world.

Sure, one could argue the reduced forecast means expectations before were too high, and the sentiment adjustment will weigh on stocks. But we have piles of evidence otherwise. The World Bank, IMF, OECD and others have consistently revised their growth forecasts down throughout this bull market. Stocks shrugged and kept climbing. We guess markets have long since figured out supranationals’ forecasts are often wrong, constantly revised and not reliable blueprints of what actually happens over the next year, two or three.

Plus, it isn’t like the forecast was cut for earthshattering reasons. It was the usual suspects: slowing China, crawling eurozone, wobbling Brazil, Argentina being Argentina[ii] and a slice of Japan. Welp, China has been slowing since 2011 and is still projected to grow 7.1% y/y this year—still fast by normal standards. The eurozone had an 18-month recession from Q4 2011 through Q1 2013 and has struggled since (oh and is also projected to accelerate next year). Brazil’s recession started in January 2014, it was weakening well before that, and it’s already bouncing back some in recent reports. Argentina has been a basketcase for ages.[iii] Japan has had three recessions during this bull market alone. Yet—you guessed it—the bull marched on. Is it really different this time? Or is this just another round of markets rehashing the same cud-like fears they’ve had for years? Not to be dismissive, but the longer something circulates, the less power it has.

So if the World Bank is right, color us thrilled. Faster growth against a big wall of worry! But what if they’re wrong? What if growth actually does slow, as they spend 216 pages warning us is all too possible? Well, the last five years of bull market suggests stocks are a-ok with slow growth. Expectations are pretty low, too. Slow growth or no, the gap between sentiment and reality remains solidly in stocks’ favor.

That’s ultimately what matters. Not whether growth speeds or slows a bit. Just where sentiment is in relation. That folks broadly freaked out over a projected acceleration tells us false fears are alive and well—markets have plenty of wall of worry left to climb.

 

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[i] FactSet, as of 1/15/2015. US 10-Year Treasury Yields, as of close on 01/14/2015; 10-Year German Bund Yields, as of close on 01/14/2015; MSCI World Index including net returns, daily percent change from prior close on  01/14/2015; Daily percent change from prior close on 01/14/2015.

[iii] Hence the aforementioned tears.

 

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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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