With the swings in sentiment and price over the last couple of weeks it’s important to keep sight of some of the trends in the fundamentals. Particularly so as a lot of markets are looking shaky short-term, with divergences showing up and key levels looking close to being breached.
Indeed, last week I outlined the elevated near term downside risks for global equities given the bearish breadth divergences.
But the chart below, which highlights the MSCI World Index, shows that even if we do get a correction or selloff it may not be time to panic. Here’s a look at the degree of global equities earnings acceleration.
The chart, which appeared in the latest edition of the Weekly Macro Themes, is what I call a global equities earnings accelerometer because it tracks the number of countries seeing a material acceleration in forward earnings growth. The blue line is the proportion of countries with forward earnings growth greater than 10% YoY.
What’s interesting about the chart is the contrast between the pre-crisis credit-fueled boom times where emerging markets were partying and rising house prices across developed economies saw debt pile up. The post-crisis period saw stagnant growth as a rule, with the hangover of the crisis lasting years.
But now there is a very interesting breakout in earnings growth, so while we might get a correction or selloff, it will be important to keep indicators like this in mind as we continue to assess the evolving outlook and weigh the odds of risk and return.