Global Growth Moderates
I believe the slowdown in global growth is a direct result of rising oil prices and, more importantly, its byproduct, gasoline. Year-to-date spot oil futures are +I6% while spot gasoline prices are +31%. I identified oil as Headwind #1 in a March 22nd blog. With oil prices maintaining above $100, the recent data suggests far more sensitivity to rising energy prices than those, including myself, expected. Obviously rising energy costs ARE currently impactful.
The bullet points below highlight some of the global growth moderation. Please do not read it with an Armageddon/ goldilocks optic. It is not a scenario of "to be invested" or "not invested at all."
Rather, the strategy I am implementing favors hiding out in big balance sheet, large cap names until growth reaccelerates. I expect pro-cyclical names to return to a leadership position late in the year. As an example, large integrated oil names such as Exxon Mobil (XOM) would be desirable over highly sensitive cyclical oil service names. In addition, a U.S. dollar that continues to trade at two year lows benefits those large cap corporations that are delivering their goods and services on the international stage.
In my recent commentary, How Am I Doing? - I noted that we expected a shift in the market from appreciating via the "Express Elevator" to a more normalized "Winding Stairs." Adjust the strategy accordingly. Diversification should be the first tool utilized in the strategy.
Recent Global Growth Moderates
- CHINA PMI reported on May 1 at 52.9 down from the prior month's 53.4.
- GERMAN FACTORY ORDERS reported on May 5 fell 4% from the previous month. Consensus estimates was expecting a 0.4% gain.
- U.S. ISM SERVICES INDEX reported on May 4 came in below consensus (57.1) estimates at 52.8. Within the report, the New Orders Index fell 11.4 points.
- U.S. ADP reported on May 4 fell from the prior month's +207,000 to +179,000.
- U.S. INITIAL JOBLESS CLAIMS reported on May 5 surged to 474,000 from last week's 431,000.
- Change in Nonfarm payrolls +150,000 to +180,000
- Change In Private Payrolls +160,000 to +190,000
- Unemployment Rate 8.8 to 8.9
Gasoline Futures Year to Date
Crude Oil Futures Year to Date