Don’t let fear sway you from stocks
The markets are resilient, Ken Fisher says.
Still scared by the last few months’ scary stories? Relax. My last three columns explained why 2018’s stock market disappointment supports a Vshaped rebound and a happy, profit-rich 2019. Yet many worry this time is different. Do you?
If so, consider this: Without global recession, a long bear market is super unlikely. Two negative years in a row have never happened without a worldwide recession or global war. To foresee that risk, consider the Conference Board’s fantastic Leading Economic Indexes (LEIs) and global purchasing managers’ indexes (PMIs). They currently presage global expansion.
LEI combines 10 forward-looking economic indicators into one super-accurate predictor of future growth (or recession). Components include such items as factory orders, credit availability, and, most telling, the yield curve spread (see my July 22 column on yield curve).
No U.S. recession has started while U.S. LEI was high and rising. It always fell for months beforehand. If recession were nigh, LEI would warn us. Now it screams growth. It’s high and rising – up 18 of the past 20 months.
Not just here! The Conference Board runs LEIs for 11 other countries, the eurozone and the world. Its eurozone LEI remains in a long uptrend. Ditto for China, India, Korea and the world. Britain’s is down, but its weakness comes from sentiment-based components, bashed by Brexit fears. Britain’s fundamental components point positively.
Combining LEIs with monthly PMI surveys adds belts to your forecasting suspenders. PMIs estimate what percentage of a country’s businesses grew. If PMI tops 50, more than half grew, implying monthly economic growth. If under 50, then contraction.
Don’t fixate on any one country – even America. Instead, scope out the biggest chunks of global
GDP. Like America, 24.4 percent of the world. Or the 28-country eurozone,
15.9 percent. Add China
(16.1 percent), Japan (5.9 percent), Britain and India (3.2 percent each) – and you’ll have enough.
December PMIs just came in – showing growth in nearly all major nations. U.S. manufacturing PMI was 54.1. Nonmanufacturing – the vast majority of GDP – hit 57.6. Britain’s manufacturing
(54.2), service (51.2) and construction
(52.8) PMIs also showed growth. Every major European country reached or exceeded 50 except France (where “yellow vest” protests disrupted business – a one-off ). Otherwise, growth!
China’s manufacturing PMI is below 50, but barely.
The global economy doesn’t need – and seldom has – all countries growing at similarly strong rates. It’s about areas of strength outweighing weak spots. Today, the strength far outweighs weakness. Yet sentiment presumes the reverse, setting up big positive surprise potential as recession doesn’t happen. Of course, stocks don’t typically move for long in a perfectly straight line.
But fathom global growth, and believe in the V!
Ken Fisher is founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times bestsellers, and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter: @KennethLFisher
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.