Rebooting Expectations

What’s happening in the global economy?

JP Morgan Global Manufacturing PMI. Source: Bloomberg

It’s no secret that the US stock market is approaching record levels. Business news reports seem to be obsessed with the Dow’s flirtation with the 20,000 mark – which first neared about a month ago. But far more important than Disney or IBM’s price – stock prices, after all, determine the level of the Dow Jones Industrial Average – is the status of the global economy. And the world economy has been improving for about 6 months now.

European industrial production has started to pick up, the US and Canada are doing much better, now that oil prices have stabilized, and – most significantly – China’s economy has been improving. The US and China are by far the two largest economies in the world: the US has an $18 trillion economy, and China produces $11 trillion of goods and services annually. Together, they constitute about 40% of the world’s economy.

For lots of reasons, it’s hard to measure what’s going on in China. Chinese economic statistics can be questionable. But one thing that can be measured fairly reliably is electricity consumption: as an economy grows, it tends to use more. And China’s power consumption has been growing around 7% per year, versus a year ago, when there was no growth.

China Electricity Consumption, Year-over-year. Source: Bloomberg

As a result, I think we can expect that our current economic expansion isn’t going to just fade away. It’s not based on sentiment or hope, but solid global economic performance.

Investors should always be prepared for something unexpected. That’s why diversification is important. But as long as the economy grows, equities will have a tail-wind—as will probably keep breaking records.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:21:31+00:00 January 12th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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