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.
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."
Click here for the original article.