The global economy has been slowing, but the decline is not as significant as many believe. Despite small contractions in some economies in 2022, there has been a return to more normal growth levels in 2023. However, it’s important to note that GDP is a historical measure and does not provide much insight into future stock market performance.
Recent economic indicators suggest that the global economy has been more resilient than expected. Purchasing managers’ index (PMI) readings have been above 50 for most of 2023, indicating that more firms are expanding. While there have been weaknesses in manufacturing PMIs, the strong performance in services PMIs has balanced it out.
Many investors worry that slowing economic growth means weak stock returns. However, history has shown that stocks can still perform well even when the economy is expanding at a modest pace. As long as an economic recession is not anticipated, stocks tend to make long-term upward progress.
It is important for investors not to solely focus on GDP figures, as they can be backward-looking. The current signs point to a healthier economic reality than what is often expected. While a recession is always a possibility, the constant predictions of one since early 2022 have likely diminished their impact on the markets. At the moment, it seems that stocks can benefit from a healthy economy and the gains that come with it.
