Market’s View Is Internally Inconsistent: There Is No Goldilocks Here

MOUNT KISCO, N.Y., Feb. 27, 2019 (GLOBE NEWSWIRE) -- David Levy wrote to clients in the February 2019 issue of The Levy Forecast^® that a continued rally in the U.S. stock market in 2019 appears to be resting precariously on three legs: (1) continued dovishness by the Federal Reserve, (2) a second-half improvement in global economic conditions, and (3) the willingness of global investors to keep moving into risky emerging market assets. Levy warned that the market’s view is “internally inconsistent” and that these three Goldilocks conditions are unlikely to coexist through the year.

The chairman of the independent Jerome Levy Forecasting Center LLC (www.levyforecast.com) continued, “The most likely scenario remains that the global economy does not reaccelerate in the second half [of 2019] and that U.S. corporate profits decline through the year. . . In fact, the world economy is most likely going to deteriorate more than widely expected in the first half, leaving markets’ assumption of stable interest rates intact . . . but testing investor optimism about the second half.”

Levy and director of research Srinivas Thiruvadanthai, writing in a publication devoted to forecasting and analyzing economic and business conditions since 1949, together cautioned against optimism regarding Chinese stimulus, concluding that “stimulus may be less effective than markets seem to believe,” and that “China’s credit policy is increasingly pushing on a string.”

Levy explained, “To strengthen the economy, a stimulus ultimately must increase the profit sources. . . Credit expansion that merely rearranges balance sheets without funding new investment or consumption has no direct positive effect.”

Levy wrapped up the situation as follows: “If, by the time the second quarter is well underway, Beijing’s stimulus shows no signs of arresting the decline in Chinese enterprise profits amid widespread evidence of economic activity turning down, investor confidence in global risk assets, if still intact, will in all probability collapse.”

About The Jerome Levy Forecasting Center LLC
The Jerome Levy Forecasting Center LLC – the world leader in applying the macroeconomic Profits Perspective to economic analysis and forecasting – conducts cutting edge economic research and offers consulting services to its clients. The goal of the Levy Forecasting Center is to improve its clients’ business and investment performance by providing them with powerful insights into economic risks and opportunities – insights that are difficult or even impossible to achieve with conventional approaches to macroeconomic analysis. Additional information may be found at www.levyforecast.com.

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Robert C. King
rking@levyforecast.com