The
U.S. is putting more distance between itself and the rest of the world in terms
of growth expectations from professional investors.
The
news keeps getting worse for global economic prospects, with respondents to the
Bank of America Merrill Lynch Fund Manager Survey for October now holding their
dimmest view for the future since the financial crisis.
A
record 85 percent of market pros say the world is in the "late cycle"
period of growth. That's the highest reading since November 2008, just two
months after Lehman
Brothers collapsed and triggered the worst days of the Great Recession.
That level is also a full 11 percentage points above its previous record in
December 2007. A net 38 percent expect the global economy to decelerate over
the next year.
However,
the view on the U.S. is not as dour.
In
fact, the gap between expectations
for the U.S. economy vs. the world is at its widest since October
2007, right around the stock market highs before the crisis plunge.show chapters
The results
come just a year after global synchronized growth was one of the market's
biggest stories. Economies were thriving together for the first time since the
recession, sparking a rally in risk assets around the world.
Now,
much of the global economy is sinking while the U.S. continues to rise.
The International
Monetary Foundation recently cut its outlook for the world economy
in 2018-19 by 0.2 percentage points to 3.7 percent. At the same time, U.S. GDP
rose an average 3.2 percent in the first half of 2018, and the Atlanta Fed is
projecting the third quarter to come in at 4 percent.
Investors
are most worried about a
global trade war as the Trump administration uses tariffs to try to
close its trade deficit, particularly with China. However, fears about the
conflict are declining as respondents turn to concerns that the Federal Reserve
may make a policy mistake by tightening too quickly.
That
jibes with indications company executives have been giving during earnings
calls so far. Goldman Sachs found that during the nascent third-quarter
reporting period, more
officials are expressing concerns about rising currencies,
particularly the U.S. dollar, than tariff issues.
The
Fed has been raising rates in a gradual, steady manner, and Chairman Jerome Powell recently
jolted markets when he said there is a good distance to go yet before
rates stop increasing. In addition to hiking its benchmark funds
rate, the Fed has been reducing the size of its balance sheet by allowing up to
$50 billion a month in proceeds from bonds it holds to run off in a process
nicknamed "quantitative tightening" or QT.
A
slowdown in China ranks third among investor concerns.
Stocks
have been volatile over the past two weeks, though the pessimism may not have
reached a point yet to turn the latest market selling around.
"Investors
are bearish on global growth, but not bearish enough to signal anything but a short-term
bounce in risk assets," Michael Hartnett, BofAML chief investment
strategist, said in a statement.
Fund
managers have cut their exposure to global equities; current positions are at a
net 22 percent overweight, just 3 percentage points higher than July's recent
low of 19 percent. Allocations to U.S. stocks also tumbled to a net 4 percent
overweight, a 17-point drop, as fund managers see domestic equities as
"very overvalued."
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