The global economy is headed towards an economic slowdown and it will take U.S. stock prices down with it.
The growth rates of major economies are anemic. China is growing at its slowest pace in two decades, putting pressure on Australia’s economy. Japan has been going in and out of recession for years now. The crisis in Greece has strained the eurozone’s economic growth even further. And the U.S. economy experienced negative gross domestic product (GDP) growth in the first quarter of 2015.
Optimistic IMF Turns Against Global Economy
And it’s not just me saying this. Even those who have been previously optimistic on the global economy are starting to entertain the same opinion.
The International Monetary Fund (IMF) just revised its global growth economic forecast for 2015 lower once again. The IMF expects the global economy to grow 3.3% this year compared to its original 3.5% growth forecast. (Source: International Monetary Fund, July 9, 2015.) I see the IMF as still being too optimistic on global growth prospects.
The IMF has now cut its expected 2015 economic growth rate three times! See the table below. It shows the IMF’s 2015 growth forecasts since July of 2014.
IMF 2015 Growth Forecasts
|Month||Expected Growth in 2015|
|% Change in Last One Year||-17.5%|
The IMF has now warned the Federal Reserve against raising interest rates.
Leading Global Growth Indicator Signaling Troubles Ahead
Many leading indicators that I follow for global growth are now more bearish than any time since 2009! Just take a look at this chart of copper prices. The red metal currently trades at the lowest level in six years.
Chart Courtesy of www.StockCharts.com
Copper is used in many industries across the globe; electronics, alternative energy, and real estate just to name just few. Declining copper prices tell us that factories aren’t even close to running at full capacity; demand is dropping.
As Goes the Global Growth, So Goes the U.S. Stock Market
American companies have significant operations in the global economy. As global growth suffers, these companies will face misery.
It’s no wonder that for the second quarter of 2015, S&P 500 companies are expected to experience a 4.5% year-over-year decline in earnings—the first decline in earnings since the third quarter of 2012 and the biggest since the third quarter of 2009! (See “Stock Market: Earnings and Revenue of Public Companies Now in Decline.”)