The International Monetary Fund (IMF) cut its 2019 global GDP growth forecast last week to just 3.3%. As recently as January of this year, the IMF was forecasting 3.5% growth. The IMF now expects advanced nations to grow an average of 1.8% and emerging nations to grow at an average rate of 4.4% this year.
If the 3.3% worldwide growth number is accurate, it would be tied with 2016 as the slowest annual pace of growth in the past decade:
In some ways, it’s not that big of a deal. As the chart shows, every year from 2012 to the present has seen average worldwide GDP growth between 3% and 4%, and this year isn’t much of an outlier. It’s just on the bottom end of the recent range.
However, analysts and investors alike don’t like to see evidence of slowing growth. Some countries in Europe are already technically in a recession by several definitions, and numbers from the United States, China, Japan, and other major markets all show some softness. The year 2017 had what was coined “global synchronized growth”, but in 2018 and 2019 it has been back to a choppy and uneven growth environment around the world.
U.S. Corporate Earnings Season Kicks Off With Good News
On a brighter note, Friday was the unofficial start this this quarter’s earning season in the United States, where companies begin reporting how they did for the first three months of the year. And from what little has been revealed so far, it looks good.
J.P. Morgan Chase, the largest bank in the United States and the 8th largest component of the C Fund, posted quarterly earnings results that solidly beat analyst expectations on Friday. The company increased both revenue and earnings by 5% compared to the same quarter last year, and the stock price jumped over 4% in one day in response to the results.
Likewise, Wells Fargo and PNC both posted results that beat analyst expectations. PNC saw its stock price jump by over 3%. Wells Fargo stock also initially jumped, but then fell sharply as the company warned that its net interest income is expected to come under pressure due to increased competition.
This is a tough quarter for earnings reports because it’s the first one in a while that has an apples-to-apples comparison to a prior quarter with tax cuts included in both cases. A major corporate tax cut was passed as part of the broader tax reform in 2017, which first took effect for the year of 2018. All of the quarterly earnings seasons throughout 2018 under a lower tax rate were compared to their equivalent year-ago quarter in 2017 under the old higher corporate tax rate. As a result, earnings jumped an average of over 19% in the S&P 500 and C Fund in 2018 compared to 2017. This first quarter of 2019 has no such tailwinds, and is being compared to the first quarter of 2018 that was under the same tax rate.
One of the biggest movers on Friday was Disney, which officially announced the details of its new streaming service called Disney+ on Thursday after market hours. It’s unusual for a $200+ billion market capitalization company to move that much in one day.
The S&P 500 has now passed 2900, which puts it less than 1% away from its all-time high closing price of 2,930 set in September 2018.