NewsWire: The risk remains to the upside
From the Stansberry NewsWire team:
One of the sticking points for markets is the fear of a global growth implosion. And data from Bank of America’s monthly Global Fund Manager Survey indicate that the ongoing trade war is a major concern… And for good reason.
If all the potential tariffs go into effect, costs will rise. In turn, that will affect consumer spending patterns. Money will not buy as much as it could… rising costs will decrease demand… and inflation will rise.
In the U.S., we’ve seen inflation hit and hold at the Federal Reserve’s 2% target. But Europe is experiencing a rise in inflation as well, and it may lead to central banks rethinking their rate targets. (Their No. 1 tool for combatting inflation is raising rates.) But, as the Fed has told us, we’d need to see inflation rise above 2% for some time before they rethink their rate-hike plans. We’re not there yet.
And we are beginning to see some signs of light in the global economic growth picture. GDP growth in the U.S. is on the rise, and while the data is not as strong in Europe and Japan, it’s not getting worse. And then there’s China… While China’s GDP data did show a decline from 6.8% to 6.7% annualized, between the first and second quarter, that’s still better than feared.
Industrial production data was also a disappointment. July showed 6% growth in-line with June, but weaker than the 6.3% expectation. This was viewed negatively, but the market became more optimistic when considering the potential for government stimulus.
This brings us back to our initial point – Money managers are expecting the worst. Supporting this was another data point from Bank of America’s survey… Cash levels have risen from 4.7% to 5%, versus the 10-year average of 4.5%. Money managers aren’t hanging on to more cash because their confidence has increased.
As they say on Wall Street, “The market loves to do what hurts the most people the most.” And, based on the sentiment of money managers, market risk remains to the upside.