Latest Global economic and market outlook
Markets remain caught within a tug of war between an extremely weak macroeconomic environment and unprecedented global stimulus. On any conventional measure (GDP, unemployment, earnings) the current state of the economy is dire, yet this is being distorted at a market level by trillions of dollars of stimulus which, as we know from the last 12 years of monetary policy, leads to inflated asset prices. To give a sense of the magnitude of this distortion at present, if we capitalise the current year’s consensus earnings in the S&P at the highest multiple the market has ever traded at (prior to this year and the tech bubble) then the warranted price would be some 30% lower. At an average P/E it would be 40% lower.
But while stimulus can affect price levels, it cannot force anxious people to eat in crowded restaurants and as such the evidence that any of this stimulus has filtered back into earnings remains scant. What’s clear however is that, given the magnitude of the current distortion, the future path of markets will depend just as much on changes in these ‘distortionary factors’ as it will on earnings. Consequently, the current potential range of outcomes is as large as we have ever known. Credible future scenarios include:
- A failure to sign a stimulus bill leading to a deflationary “doom loop”
- Excessive money printing leading to runaway inflation and a Value rally
- Vaccine development sparking a strong rotation from growth to recovery stocks
All of the above are possible and the only thing we can say with any certainty is that a continuation of the status quo is unlikely to last in perpetuity. As ever, the TT Global fund remains a bottom-up selection of high-quality companies with strong balance sheets, which should perform well regardless of the macroeconomic environment.
Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).