Led by the U.S., stocks globally rose to a new high for the year on Monday as measured by the MSCI All-Country World Index, which is now up 15.5% since the end of 2018. This surely must reflect optimism that the trade detente reached by the U.S. and China at the Group of 20 meeting over the weekend in Osaka, Japan, will finally lead to some sort of grand deal that benefits the global economy, right?
Let’s give stock traders a little more credit. The more likely explanation is that traders were just relieved the situation didn’t deteriorate further, with both sides agreeing to more meetings. But as any management consultant will say, any meeting that results in more meetings wasn’t a success. That may be why the stock market spent much of the day paring its gains, with the MSCI All-Country index closing 0.58% higher after surging as much as 1.06% earlier. The reality is that the uncertainty over where the trade talks may end up has weighed on investor sentiment. The MSCI All-Country index is down about 4.50% since January 2018, when the Trump administration started threatening tariffs. U.S. equities are nothing to boast about, with the S&P 500 Index up less than 3% in the same period, compared with more than 7% for the stodgy bond market as measured by the Bloomberg Barclays U.S. Treasury Index. That should not be the case if investors were confident. The global economy is slowing at an alarming rate, with one monthly measure of manufacturing pointing to a second consecutive contraction, something that hasn’t happened since 2012. Morgan Stanley is downgrading its forecast for world growth this year, and Citigroup did the same for 2020, with both saying the Osaka truce wasn’t enough to remove the uncertainty around trade.