After rallying to new highs last spring, the global market went into a sell-off lasting until February 11, 2016; falling on weak economic data in the USA with reported anemic GDP growth of just 0.7% in the fourth quarter of 2015, along with weaker growth reported in Europe and Japan. On February 11, 2016, fittingly, Don’t Cry over Spilled Milk Day, the market reversed course. People observed that maybe the reason retail sales were down was that it was a warm winter and people just were not buying sweaters, coats, or spending money on $100 per barrel oil. Those darn consumers were saving their money. Just in time, the fourth-quarter GDP was revised up to 1% growth then later to 1.4% — very respectable. Then along came the “J” curve, and people started spending their savings.
Economists are talking about a Goldilocks economy: not so hot that it causes high inflation nor too cold so that it causes a relapse into recession. International Monetary Fund Director Christine LaGarde is pushing for a 2% global growth target so that the bear does not come back too soon. In relation to GDP growth in Europe, we are expecting 1.4%, Japan 0.7%, India 7.4%, China 6.5%, and Brazil is in deep recession at -4%.
The Federal Reserve increased interest rates in December 2015 by 0.25% and will be conservative when/if increasing rates in 2016. We are expecting the Federal Reserve to only raise rates by 50 BPS in 2016 resulting in a steady U.S. dollar and slow and steady growth in both the U.S. and Global economies.
Domestically, we expect GDP growth to increase 2.0% in 2016 with a modest recovery in developed markets and slower economic activity in emerging markets. The only major decline on the global economic front is Brazil, with a projected -4.0% GDP rate of growth in 2016, but it is expected to emerge from its downturn in 2017. We expect continued 1.4% real growth in Europe, 0.7% growth in Japan, 7.4% GDP growth in India, and a slowing China expansion to 6.5% in 2016. The aggregate of world economies should lead to global growth in the range of 3.2% to 3.5% GDP growth. All sources are calling for a close vote on the British exit in the upcoming in-or-out referendum on the United Kingdom’s EU membership and no matter the outcome, will be closely watched by other EU members. We believe that the equity markets came to a bottom earlier this year and this bottom could serve as a base for further higher moves.