Fisher Investments Editorial Staff

Goring the Global Growth Slowdown

By, 09/02/2010

Story Highlights:

  • On Wednesday, a flurry of strong manufacturing data was released around the world.
  • These reports run counter to fears of a double dip or a new recession.
  • Recession fears today seem to speak more to the current state of sentiment than economic health.
  • For investors, negative sentiment is actually a longer-term positive.


From Beijing to bonny Sydney, and Boston to Bordeaux, Wednesday's flurry of bullish August manufacturing statistics indicates potential growth reacceleration—and stocks celebrated the data. In recent months, almost each manufacturing data release was accompanied by headlines ignoring still-expansionary data and interpreting slower growth as double-dip confirmation. But in total, reports like Wednesday's should cause investors to greatly question double-dip theories.

American investors awoke Wednesday to an accelerating Chinese purchasing managers' index (PMI) report which exceeded expectations, countering recent "too cool" concerns. Then Australian GDP surged at the fastest pace in three years—rising 1.2% in the quarter (nearly 5% annualized)—demonstrating Emerging Markets' influence on demand for raw materials from the Aussie economy. Add to that retail sales and building approvals both exceeding estimates in the land down under—further underscoring continued strength. French PMI also accelerated over July's report, and the eurozone, as a whole, remained solidly expansionary. US manufacturing also surprised to the upside. The Institute for Supply Management (ISM) reported its manufacturing survey rose to 56.3 in August from July's 55.5 —much better than consensus estimates of a decline to 53.2. And while the UK posted cooler (but still expansionary) PMI growth, the headline number veiled acceleration in capital goods consumption, inventories in need of restocking, and an improving employment outlook—all positives.

Now add this data to other global statistics, and yes, US data, and a double dip (or new recession) looks less and less likely. It seems more likely double-dip talk today is a function of dour sentimentnot dire data.

That people still feel negative about the economy and stocks shouldn't come as much surprise. Early in a bull market, most folks typically feel negative for too long. (While time usually heals all wounds, in investing, that time can cost a fortune due to lost compound growth.) The bigger-than-average bear market of 2008 plus hotly contested US midterm elections (in which the economy is a frequent talking point) probably don't add much to the "feel-good" column.

But when constructing a bull market, negative sentiment and much more bullish fundamentals are two key ingredients. After all, if all investors were perfectly rationally sizing up global growth, stocks would be exactly fairly priced. However, with sentiment weighing on markets short term, appreciation of fundamentals simply isn't there yet—creating opportunity for investors who can see through widespread fear. Combining negative sentiment with much stronger fundamentals is a force contributing to making stocks extremely cheap compared to bonds today. Recent economic hypochondria over slowing growth rates is, in our view, bullish in nature longer term—as fears are gradually dispelled, those who previously doubted recovery buy in. With continuing economic expansion comes the gradual conversion of pessimists to optimists—which in turn likely drives stocks higher. Like Rome, this won't be done in a day, but when a bull market is being built, investors are well served to be in on the ground floor.

*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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