December 30, 2019
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. We began writing about this in early September based on cyclical sector performance divergences. Our expectation at the time was for global PMI to begin improving sometime during Q1. This week’s PMI data (and US manufacturing ISM) will be important, but we still think the more obvious improvement will wait until late Q1 and begin to run above trend sometime around mid-year. If we’re right, the improvement in Q1 will be enough to change investor perception about the cycle’s durability and lead to a more proper allocation to equities. We expect these newly allocated funds will seek out cyclically-sensitive markets and sectors not yet trading at 52-week highs. We think International Equities (Japan, EM and the Eurozone in that order) will attract more flows than the SPX.