The Stock Market Finally Acknowledges Reality

This year’s remarkable surge in global equities sparked optimism that the recovery from the fourth quarter’s steep 13 percent sell-off would be V-shaped. The action on Thursday suggests it’s more likely to look like a W. After surging 8.65 percent since the start of the year, stocks tumbled as much as 1.37 percent as investors could no longer make excuses for the deteriorating economic outlook.

That was on full display in Europe, where the European Commission made sweeping downward revisions to most of the region’s major economies. It now sees the 19-nation euro-area economy expanding by just 1.3 percent this year, down from the 1.9 percent projected in November. Italy’s economy has already met the technical definition of a recession. “Much of the euro area’s loss of growth momentum can be attributed to fading support from the external environment, including slower global trade growth and high uncertainty regarding trade policies,” the commission said. That’s not wrong. The JPMorgan Global Manufacturing PMI index fell to 50.7 for January, the lowest since 2016. The measure is a diffusion index, meaning readings above 50 denote expansion and those below 50 signal contraction. “When you get these numbers coming out of Europe, it just reminds you, ‘Well, gee, that’s an issue and it’s symptomatic of all of this prevailing view that the global economy is slowing down,’’’ David Joy, chief market strategist at Ameriprise Financial, told Bloomberg News. As for “trade policies,” which is really code for the talks between the U.S. and China, the normally upbeat White House economic adviser Larry Kudlow expressed some unusual pessimism that surprised investors. He told Fox Business in an interview that there is a pretty sizable distance to go in U.S.-China trade talks, which sent stocks to their lows of the day.