by Ralph Cole, CFA
Director, Equity Strategy and Portfolio Management
With global governments and central banks providing liquidity at an unprecedented pace, you would expect global growth to be growing synchronously. But, as has been the case from the beginning of the pandemic, the virus and the multitude of government responses to combat the virus have varied from country to country. This has led to an un-synchronized recovery and expansion, but a recovery and expansion, nonetheless.
Below you can see the most recent Purchasing Managers' Index (PMI) reports for the United States, China, the Eurozone and the world as a whole. PMI measures how purchasing managers feel about their business today and in the future. Any reading over 50 is considered expansion territory and readings over 60 are exceeding rare.
Source: Refinitiv
As can be seen in the chart above, the U.S. just recently dipped below 60, while Europe has accelerated to a reading of 62.8. The pandemic and associated responses have hit different parts of the world at different times. For example, China, the first into recession, was also the first country out of recession. Other countries have since followed suit, albeit at their own pace. However, despite supply chain imbalances, purchasing managers at manufacturing companies around the globe feel very positive about their future business prospects.
Europe as Economic Leader?
Coming out of the great recession of 2008 and 2009, U.S. companies and their corporate profits bounced back much more quickly than their peers in Europe. This led to U.S. equities outperforming their European counterparts for the better part of the last decade. Recently, data is showing European earnings accelerating at a similar pace as the incredibly robust U.S. earnings. Both regions have had 20+% earnings revisions since the beginning of the year, while the Pacific region excluding Japan has lagged.
Source: FactSet, STOXX, Goldman Sachs Global Investment Research
For clients, this strengthening European market has been a positive; our portfolios are currently overweight the industrial, technology and consumer discretionary sectors within Europe. All three sectors have experience solid earnings growth over the past year and should continue to benefit from global economic expansion in the coming years.
Takeaways for the Week
Despite uneven global recovery, and the proliferation of the Delta variant of the coronavirus, global purchasing managers remain upbeat
Earnings have led to strong stock market recoveries both here in the U.S., as well as Europe