The main factor driving markets higher despite so many roadblocks

Mark Spellman, Portfolio Manager Alpine Rising Dividend Fund
·Mark Spellman, Portfolio Manager Alpine Rising Dividend Fund

In a word: resilient. Global stock markets have so far been able to shake off event after event that has been thrown at them from a surprise Brexit vote, to global geopolitical tensions, to natural disasters. Spikes in stock market volatility have proven to be short-lived, and 2017 has been a year of low market volatility on average and higher global stock prices.

VIX Index has bounced along one year lows

Source: Bloomberg
Source: Bloomberg

So what’s driving markets higher in the face of what many perceive as numerous roadblocks? There are likely many factors (and theories) but one factor in our mind seems at the root of it: global GDP growth is positive throughout the world.

Of the 51 economies the Organisation for Economic Co-Operation and Development (OECD) tracks, all 51 registered positive GDP in 2Q17. In addition, 40 of those economies, or 78%, had GDP growth that accelerated from 1Q17 levels.

The OECD’s more recent monthly Composite Leading Indicators show that momentum from the end of June seems to be sustaining itself through August (most recent data point). On a year-over-year basis, the indicator shows a positive reading for the tenth straight month. These are powerful backdrops for corporate earnings throughout the world and thus stock prices. The roadblocks have proven to be just bumps in the road versus global economic growth so far.

OECD Year over Year Leading Indicators Have Accelerated

Source: OECD.Stat – Monthly Economic Indicators: Composite Leading Indicators (MEI)l
Source: OECD.Stat – Monthly Economic Indicators: Composite Leading Indicators (MEI)l

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