We think the biggest driver next year will be above-trend global growth. Monetary easing from the Fed and EM, plus fiscal stimulus from EM Asia has already improved the leading-edge indicators (manufacturing PMIs) of global growth.
Light attendance, low volume and an absence of incremental catalysts keeps the prevailing trend in place until something big enough comes along to challenge the current narrative.
The bullish narrative should remain in place through year end based on a quiet catalyst calendar. The major macro uncertainties that existed through most of the year have seemingly been resolved…at least for the time being.
The early-September positive divergence from cyclically-sensitive semiconductors was our first clue on a future recovery in global growth. Positive divergences in cyclically sensitive sectors and indices (NKY, DAX and MSCI World Auto Index) soon followed, which added to our conviction for a recovery in global
Remarks from the Fed’s Kaplan and Rosengren yesterday match expectations for the central bank to keep policy rates on hold for the foreseeable future. Every Fed speaker since last week’s FOMC has sounded the same despite their own reputation for being either dovish or hawkish.
The catalyst calendar into year-end has already started thinning out. Based on scheduled events, there doesn’t seem to be anything significant enough to challenge the current narrative and change the upward trajectory of equities.
The outperformance of cyclical indices beginning in early September was the first indication of a potential improvement in global PMI data 3-6 months forward. The first cyclical index to diverge was the Philadelphia Semiconductor Index (SOX), an index that also happens to be highly trade-sensitive.
