When Rich Nation Growth Stagnates: Zacks Market Strategy

The following is an excerpt from Zacks Strategist John Blank’s latest Monthly Market Strategy report. To view the whole PDF, click here>>

I think globally. Do you? Follow me on twitter @johnblank100

The latest Zacks Market Strategy report holds two provocative insights hailing from advanced (translation:rich) countries. First, rich nations other than the USA struggle to build any real GDP growth momentum. Second, their consumer price inflation looks subdued vis-à-vis the USA, too.

U.K. in Denial About Looming Brexit GDP Weakness

Let’s start with the latest news from the U.K. Frosh U.K. Prime Minister Theresa May now says Brexit begins by the end of March 2017.

According to comments published in the Financial Times, whichever way you look at it, things aren’t pretty for the U.K. pound. And the U.K. pound has already hit lows last seen in 1985.

A number of major FX strategists expect things to get messier still—

With a -6% flash crash in hand, I can’t say I disagree with what was written by these pessimistic FX strategists. The U.K. pound is headed lower. But the export sensitivity of U.K. FTSE stocks keeps the share markets there headed higher – for now.

When we see U.K. stocks crash, due to U.K. macroeconomic weakness showing up, then the political tone may well change.

The narrative away from the USA interested me this month, as I looked further into the matter of advanced nation GDP growth stagnation. Check out this writing from USA economists on the West Coast…

Output Growth in Advanced Countries STAGNANT — San Fran Fed

“In particular, [San Fran Fed economists say] output growth in other advanced economies, such as the Euro area and Japan, has been relatively stagnant since the global financial crisis. Foreign inflation has also been subdued in comparison with the United States.

“These differences in economic performance have resulted in diverging monetary policy stances. The United States has begun to normalize its monetary policy and is expected to tighten it more in the future.

“In contrast, the European Central Bank and the Bank of Japan have eased monetary policy further—through more negative rates on reserve deposits and greater quantitative easing—and both central banks are expected to stay very accommodative in the near term.

“This divergence in policy paths has increased demand for U.S. assets by foreign investors seeking higher returns, and further pushed U.S. long-term interest rates down.”

GDPNow Has USA GDP Growth at +2.2% in Q3

The USA is staying only a small step ahead of advanced country GDP growth doldrums, with +2.2% GDP growth forecast for Q3-16. But USA consumer spending is holding up much better. According to the Atlanta Fed’s GDPNow growth tracker on Oct. 5^th, third quarter real consumer spending was +2.7% y/y.

On that relatively upbeat note, I found the Zacks Industry Ranks to show lots of medium upgrades -- and no real loser sectors this month.

Zacks Sector/Industry/Company Telescope – USA Consumer Is Lively

(1) Materials rise to Very Attractive this month. Big winners are Paper, Metals Non-Ferrous, Building Products-Construction Materials, and Containers & Glass.

Zacks #1 (STRONG BUY) Company: BHP Billiton (LON:BLT) ( (NYSE:BHP) )

BHP Billiton is a leader in the global natural resources industry. The Group has high-value and industry-leading positions in aluminum, metallurgical coal, thermal coal, copper, ferro-alloys, iron ore and titanium minerals and also has substantial interests in oil, gas, nickel, diamonds and silver.

(2) Health Care remains at Attractive. The Medical Care industry leads.

Zacks #1 (STRONG BUY) Company: Wellcare Heath ( (NYSE:WCG) )

WellCare Health Plans, Inc. provides managed care services targeted exclusively to government-sponsored healthcare programs, focusing on Medicaid and Medicare. WellCare provides high-quality, affordable healthcare services to members in Florida, New York, Connecticut, Illinois and Indiana.

(3) Info Tech stays at Attractive. Big industry winners are the usual Semiconductors and Misc. Tech.

Zacks #2 (BUY) Company: ST Microelectronics ( (NYSE:STM) )

STMicroelectronics is a global independent semiconductor company which designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems.

(4) Financials rise to Attractive from Unattractive. Big winners are Investment Funds and Real Estate. Banks cluster around Market Weight.

(5) Consumer Staples is an Attractive sector, rising from Unattractive last month. Big winners are Food and Beverages at Very Attractive.

(6) Consumer Discretionary moves up to Market Weight from an Unattractive rating last month. Big winners are Consumer Electronics and Other Cons. Disc. at Very Attractive now.

(7) Energy remains at a Market Weight. There is a full cluster at the center. Range-bound.

(8) Industrials are a Market Weight. The leader is Metal Fabricating. Conglomerate and Airlines are at the back.

(9) Telcos are at Market Weight.

(10) Utilities are at Market Weight.

This is an excerpt from Zacks Strategist John Blank’s latest Monthly Market Strategy report. To view the whole PDF, click here>>