As the Dow Jones passes 17,000 for the first time, is the global economic recovery secure?


The global economic recovery is on a solid footing, albeit still susceptible to shocks. Central banks in developed economies have provided historic levels of support, but (in the US and the UK) have also begun to hint at a gradual removal of this medicine – an important sign that the recovery is becoming more self-reinforcing. Of course, the global recovery has been uneven, with the UK and US leading, Europe only recently joining the party, and some emerging markets battling with their own imbalances. One way to monitor progress is what we call a “heat map” of global Purchasing Managers’ Index (PMI) data, based on how manufacturers see the future. The colour coding of the heat map shows whether there has been contraction (red) or expansion (green) in countries around the world. We’ve gone from a sea of red in 2012 to a sea of green now. This means the rebound in economic activity is real and sustained, supporting the case for being a moderate buyer of shares. Andrew Goldberg is global market strategist at JP Morgan Asset Management.


The global recovery does not fully account for the rise in markets, and the growth that would justify these elevated price levels is not guaranteed. Firstly, central banks have kept policy loose, but as asset purchase schemes wind down, the support will weaken. Secondly, “forward-looking” markets have been driven by expectation, not just evidence, of growth. When it’s cheaper for Ireland to borrow than the United States, you have to be concerned by a disconnect between investor sentiment and economic reality. The US is still struggling with a lack of wage growth, with China reining in lending. Grinding higher on low volume does not signal market conviction. Investor rotations out of growth stocks, and into value stocks and cash, are a sign of caution. We’re still in a sweet spot of growth without an imminent rate rise. But the higher markets go, the more the risks will become apparent. Gemma Godfrey is head of investment strategy at Brooks Macdonald and an official contributor for CNBC. @GCGodfrey.