Don’t let fear sway you from stocks

The mar­kets are re­silient, Ken Fisher says.

USA TODAY US Edition - - MONEY - Ken Fisher Colum­nist No U.S. re­ces­sion has started while U.S. (Lead­ing Eco­nomic In­dex) was high and ris­ing.

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.


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