Stock Traders Have Turned Into Snowflakes

It’s been a great year for the global stock market, with the MSCI All-Country World Index up 13.7 percent. But the message Tuesday is that investors are far from convinced the rally is sustainable, going by the reaction to the International Monetary Fund’s latest global economic outlook.

Stocks had been enjoying a strong day until the IMF report hit at 9 a.m. New York time, causing the MSCI index to go from being up as much as 0.20 percent to dropping as much as 0.45 percent. Stock investors took flight on headlines reporting that the IMF cut its global economic growth outlook to the lowest since the financial crisis in 2009, when output shrank. That sounds scary, but the IMF’s 3.3 percent estimate for 2019 is not that out of line with the level of output since the global economy began to recover. In fact, growth has fluctuated from about 3.4 percent to about 3.75 percent since 2012. Plus, the IMF expects growth to accelerate to 3.6 percent next year, climbing back to the upper end of the recent range. In that context, the sell-off in stocks says a lot about the delicate nature of investors’ psyches these days. In other words, this year’s rally in equities was largely all about the dovish turn taken by central banks led by the Federal Reserve. And with stocks having largely recovered from the tumble late last year, that theme has been played out. Investors now seem more prone to sell on any news perceived as negative; that’s a bad development, seeing as companies are due to report stagnant earnings growth for at least the first half of 2019.