Very Few Think the Globally Economy Will Be Stronger in a Year
Can the global economy get any better than it is today? While the majority believe it can and will in the short term, long-term optimism is in much shorter supply. As MarketWatch reports, a new survey finds that very few investors believe the economy will be stronger a year from now.
According to the latest Bank of America-Merrill Lynch survey of fund managers, a mere 1% suggest the global economy will be better off in a year. Not only does that response mark the lowest optimism since February of 2016 but is also a stark contrast to last year when 40% expected 2018 to have a strong start. Despite that, more than three-quarter said that stocks hadn’t quite reached their peak just yet. Elsewhere in the BofA survey, investors cited potential policy mistakes by the Federal Reserve or European Central Bank as the top risk facing the markets. In fact one-third of respondents ranked that as their top concern compared to 23% who said the same thing in April.
Similar to what the BofA survey discovered, a recent Wells Fargo Investment Institute report also noted the rapid erosion of optimism among the market and pointed to reasons for the change. The report stated, “Investor sentiment has changed abruptly in 2018. In 2017, the markets were focused on U.S. tax reform, significantly higher corporate earnings forecasts, and expectations for increased consumer, business, and infrastructure spending. Among other, persistent improvements in 2017, these economic tailwinds had created an optimistic consensus outlook for accelerating, and synchronized, global growth in 2018.” It went on to say, “Fast forward a few months, and investors now are facing headlines about tariffs and sanctions, escalating Middle East tensions, equity market volatility, concerns over interest rates rising too quickly (after being subdued for years), and a few economic report disappointments. These developments seemingly have dampened the optimistic global growth outlook.”
This isn’t the first sign we’ve had that a strong bull market could have its days numbered — last month, Morgan Stanley analysts released a report suggesting as much and calling the current period “happy hour in America.” The firm reasserted that position early this week, writing “Decelerating growth, rising inflation and tightening policy leave us with below-consensus 12-month return forecasts for most risk assets. After nine years of markets outperforming the real economy, we think the opposite now applies as policy tightens.”
As for when the next recession will arrive, investors are a bit split on the timing, although only 2% expect it begin this year. Of those surveyed 30% believe a recession will hit in the first half of 2019 while 11% forecast it will be the latter part of the year. However 43% aren’t expecting a recession to arrive until at least 2020.
This latest survey once again underscores the point that the U.S. market booms we’ve seen since the election of President Donald Trump are likely behind us and that the overheated market (as some have described it) is due to cool. Still it’s interesting to note that the largest portion of respondents suggest that a global recession is not as imminent as others have warned. As we prepare for whatever comes our way, we’ll have to wait and see if the 1% were right and there are even better days ahead in 2019.
Also published on Medium.