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Global Markets Disregarding “Noise”


Global Markets Disregarding “Noise”

The late great John Marks Templeton recognized long before other mutual fund managers the importance of maintaining a global perspective—and investing accordingly.

He launched his Templeton Growth Fund in 1954, a time when the U.S. economy and corporations were dominant, and soon thereafter began adding Japanese stocks to his portfolio.

That was just the beginning. In 1999, Money Magazine called him “arguably the greatest global stock picker of the century.” By the time he died in 2008, he was one of the world’s richest men, and biggest philanthropists.

Why talk about Templeton today? As a reminder of the importance of being positioned to capture gains wherever they are available–the timing of which is seldom precisely predictable.

Gains Outside the U.S.

It happens that lately, American companies overseas are doing better than those whose markets are primarily limited to the U.S. The Global market indicators are up nearly 1.5 times the rate of the U.S., with Stoxx 600 up 9.5% and the Dow Jones Global ex U.S. (ex = without), up 11.5%. This illustrates that the shift in investor focus to economies with even more room to grow has happened, as we suggested six months ago.

Most public companies have published their first quarter numbers. The news is the economy is fine, and companies’ profitability is increasing. This quarter it was expected that corporate profits would rise, and they are. The market was focusing on that important fact in May, and didn’t swoon when President Trump fired FBI Director James Comey. The market viewed that, despite the great media attention it received, merely as background noise.

Entering the second quarter we experienced a less than robust GDP increase of .7%, an unemployment rate of 4.4%, an inflation rate of half the interest rate, and a stock market that will not let the geo-political noise ruin its run.

Even if we consider the true unemployment rate (which includes “discouraged” workers–unemployed but have given up, at least temporarily, looking for jobs) the rate is 8.6%. While that number is nearly double the nominal 4.4% rate, it’s the lowest it has been since 2007.

A Year for Gains

We do not expect huge increase in the stock market for 2017, but a positive year nevertheless, and one where Europe and other parts of the world outperform the S&P 500.

The perspective of economist Brian Westbury is instructive. As he lays it out, the U.S. economy is not teetering on the edge, and has steadily grown since the Great Recession. The supply or production of goods actually creates wealth, not consumption. He sees U.S. entrepreneurs on a roll, and the production side continuing to ramp up.

The heavy hand of government, Westbury maintains, is what keeps holding the economy back. Even so, wages continue to rise, although consumers are shifting their purchasing habits from shopping in “brick and mortar” retail establishments, to “e-tailers.” What’s bad for Macy’s, Nordstrom, and Kohls is good for Amazon, Ebay and the online retailers whose stocks are on the rise.

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