The term buzzing around the industry today is global synchronization. The global economy is growing and nearly every country is contributing (even Greece). It is a welcome change after years of quantitative easing. The chart below provided by J.P. Morgan shows the Global Purchasing Managers’ Index for manufacturing over the last 2 years. The index is a gauge for manufacturing activity in each country and is measured with a baseline of 50. Green readings above 50 indicate growth, and the darker the shade of green and higher above 50 the faster that sector is growing. Similarly, an index level below 50 implies a decline, with darker shades of red indicating the sector is weakening at a more rapid pace.
Global growth synchronization is one of the factors lifting stock market returns this year. The top line on the graph shows how the global economy went from stall speed (index levels near 50) in early 2016 to accelerating growth through 2017. The growth has been led by the developed markets but many emerging markets have swung from recession territory to growth.
As we mentioned in our quarterly commentary, despite the global growth there are challenges going forward. First, the stock market’s current valuation appears to be already reflecting the good news. Second, as economic activity improves, the Federal Reserve and other central banks will raise rates and tighten monetary policy.
If you would like to see what impact global synchronization has on your portfolio, schedule a meeting with your Security National Bank Wealth Management Advisor.
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