Global Evidence of a Soft Landing

No nation dominates the global economy like the United States. Both developing and developed nations view the U.S. consumer as the one marketplace that can lift fortunes at home. For a long time it has been fact that when the U.S. catches a cold, the rest of the world catches the flu. Right now our economy is definitely in the midst of a mild cold. Over the past year economic growth the hangover from the housing boom has dragged growth to levels unseen at home since our last recession. At the same time there are very few signs that our sluggishness is spreading. In late February stock markets across the global sold off steeply as signs of problems in the subprime mortgage sector emerged. However, the U.S. stock markets are among only a handful of markets that have failed to rebound to new record-breaking highs.

Economists predicting the possibility of a hard landing should look no further than what is happening globally. Global economic growth is on track to approach five percent. Although this is slightly below levels of the past couple years, it is still considered very healthy. Those calling for a hard landing need to explain whether the influence of the U.S. economy no longer matters on the global stage. Asian economies that struggled for many years are seeing a resurgence of economic activity unlike that of any time in history. Europe is showing signs of coming back to life. South America looks very strong in comparison to its chaotic history of booms and busts.

In Financial Watch’s views, predictions of a recession have been blown out of proportion. We see the present odds of a recession at less than 10%. Corporate earnings should come well above present expectations. Investors can benefit by seeking out firms with strong international exposure. Asia is expected to experience the fastest growth of any region this year, however Latin America is going strong and Europe is finally coming out of its long slump. Avoid companies levered to housing or anything related to working class consumers. This year, more so than most years, will have specific sectors outperforming the market while others will lag. Stay with the investment banks, telecommunication firms, and infrastructure companies.

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