Yahoo Finance Weak global growth will mean market stagnation until the end of 2017: portfolio manager
On the surface, at least, things look good for stocks. This week, the S&P 500 (^GSPC) saw its best two-day winning streak since March. It’s about 3% away from record highs.
But according to one fund manager, there is little reason to be overly optimistic about the markets for the rest of the year or even for much of 2017.
“Global growth is going to continue to decelerate,” said Chad Morganlander, portfolio manager at Stifel’s Washington Crossing Advisors. He sees this weakness based on his expectation that China’s fiscal stimulus from earlier this year will wear off. China is estimated to contribute nearly a one-third of the IMF’s 3.1% global growth forecasts.
“There's going to be a fiscal retrenchment within China,” he said. “Debt creation in China is going to be substantively lower. As well, the emerging markets in general are going to be lackluster, which accounts to about 50% of global GDP.”
The worldwide economic environment could impact the Federal Reserve’s inclination to hike interest rates.
“If they raise rates a quarter of a percent when 30% of sovereign debt is actually at negative yields, it will have a major impact on the U.S. dollar,” he said. “That feedback loop into the commodities complex as well as other crosscurrents within the emerging markets could start to actually force financial conditions to be quite tight.”
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Morganlander said the Fed should be accommodative for the rest of the year and wait until December to do another rate increase. He anticipates just two more in 2017. According to the CME’s FedWatch tool, the market expects a fed funds rate hike of at least 25 basis points by the end of July.
“The economy has not hit escape velocity. We do not believe that we're at full employment, nor do we believe that the inflation numbers that have ticked up modestly will actually continue to reaccelerate over the course of next 18 months,” Morganlander said.
A lackluster economy in the coming months will translate into lackluster returns for the S&P 500, he surmised. “Our long-term forecast—and this is talking about over the next three to five years—about a 5% to 6% total return,” he said. “You have profit margins that are at historic highs and they're starting to roll over.”
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