Dec 15, 2017 -

Don't get too excited about the global economy

The global economy has perked up over the last six months, with economic growth in Europe and China in particular surprising investors with their relative strength. This has helped drive stock prices higher, but the OECD warned market participants Tuesday that the good news may not last.

Data: OECD, Consensus Economics, Thomson Reuters; Chart: Andrew Witherspoon / Axios

Though growth forecasts are up slightly in the U.S. and Europe, they've actually fallen in Japan. Meanwhile, investors in the U.S. are facing the prospect of much higher interest rates, which will put a damper on stock prices. "In financial markets, there are apparent disconnects between the positive assessment of economic prospects reflected in market valuations and forecasts for the real economy," the OECD said

Why it matters: The OECD says the stock market has gotten ahead of itself of late. They're not predicting a crash, but absent better hard data, we should expect the rally to fade.

What's next

2019 stock market gains still leave Trump behind his predecessors

The S&P 500 has jumped 42% under President Trump — according to market data from the inauguration through 2019's final day of trading.

Why it matters: Trump uses the stock market's surge as a barometer of his presidency's success — one that, along with the 50-year low unemployment rate, he's sure to continue to tout as the 2020 election approaches — but the gains under him lag those under former Presidents Barack Obama, when stocks rebounded from the lows of the financial crisis, and George H.W. Bush.

World Bank cuts growth forecast for fourth time in a row

Photo: Win McNamee/Getty Images

The World Bank cut its global growth forecast for the fourth straight time on Wednesday, reducing expectations by 0.2 percentage points each year for 2019, 2020 and 2021.

"Global economic growth is forecast to edge up to 2.5% in 2020 as investment and trade gradually recover from last year’s significant weakness but downward risks persist. ... U.S. growth is forecast to slow to 1.8% this year, reflecting the negative impact of earlier tariff increases and elevated uncertainty."
— World Bank statement on its Global Economic Prospects report

Powell and the risk-off bull market

Jerome Powell. Photo: Alex Wong/Getty Images

The Fed’s 180-degree turn was the story of 2019, asset managers and market analysts say.

What happened: Chairman Jerome Powell and the U.S. central bank went from raising interest rates for a fourth time at the close of 2018 and giving market watchers the explicit expectation this would continue in 2019, to doing the opposite. The Fed cut rates thrice and even began re-padding its balance sheet in the last quarter of the year, bringing it back above $4 trillion.