Global Stock Market Reaches Its Moment of Truth

Investors generally fall into one of two camps: those that take the long view and largely ignore the noise emanating from day-to-day fluctuations in asset prices, and those that live and die by those same gyrations. In that sense, Tuesday’s action in the global stock market might not seem remarkable with the MSCI All-Country World Index inching up a mere 0.20 percent, but to the so-called fast money, the move is extremely important.

The day’s gain left the index right around 500, a level that it has made a run at three times since mid-October but failed to break through in any meaningful way, falling back each time. So, will this time be different, with the benchmark not only holding at this level but rising to even greater heights in short order, or will it retreat again? Sadly, the odds are on the latter. The bull case for stocks is largely based on suddenly dovish central banks and lower bond yields. But central banks are dovish and bond yields are lower for good reason, which is that a preponderance of the data indicate a much slower global economy ahead that brings with it an earnings recession. A UBS AG model suggests world growth slowed to a 2.1 percent annualized pace at the end of 2018, which the firm says would be the weakest since 2008-2009. China car sales dropped in January, and data last week showed U.S. retail sales posted their worst drop in nine years in December. In Europe, where the slowdown has been particularly notable, sentiment indicators continue to weaken, and the latest OECD leading indicator has also declined, according to Bloomberg News’s Fergal O’Brien. “Markets frequently change their mind, but even adjusting for that, the shift in ‘conventional wisdom’ in recent months has been nothing short of whiplash,” Morgan Stanley Chief Cross-Asset Strategist Andrew Sheets wrote in a research note Sunday.