Another day, another record high for the stock market in 2018.
With the government shutdown set to be in the rear-view mirror in Washington, D.C., financial markets started the week on a positive note with each of the major averages hitting new all-time highs.
The tech-heavy Nasdaq paced gains on Monday with a 0.7% advance that brought its year-to-date gains to a whopping 7% while the S&P 500 gained 0.5% and the blue-chip Dow was up about 0.3%.
On Tuesday, markets will get a number of major earnings reports during a week that sees the earnings flow really ramp up, with notable reports expected from Procter & Gamble (PG), Johnson & Johnson (JNJ), Travelers (TRV), United Airlines (UAL), Capital One (COF), and Yahoo Finance parent company Verizon (VZ).
The economics calendar is fairly barren, with only the Richmond Fed’s latest manufacturing index serving as a highlight.
The IMF is bullish… for now
On Monday, the International Monetary Fund released its latest estimate for global economic growth.
And the outlook is super bullish.
The IMF now expects the global economy grew 3.7% in 2017 and forecasts the economy will grow 3.9% in both 2018 and 2019. “The pickup in growth has been broad based, with notable upside surprises in Europe and Asia,” the IMF said.
“Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes.”
And with the IMF giving so much credence to the boost the U.S. and global economy will get from the Trump tax cuts passed late last year, the Fund also warns that this confluence of economic factors pushing growth higher isn’t likely to last.
“Our view is that the current upturn, however welcome, is unlikely to become a ‘new normal’ and faces medium-term downside hazards that likely will grow over time,” writes Maurice Obstfeld, director of research at the IMF.
Among other factors likely to pressure the global economy over time, Obstfeld notes that advanced economies — like the U.S. and many in Western Europe — are close to closing their “output gap,” which is the estimated distance between realized and potential GDP growth.
Additionally, the easy money monetary policies that central banks around the world pursued after the financial crisis — low interest rates, purchasing assets — are coming to an end with the Federal Reserve set to raise rates three times in 2018 and the European Central Bank likely to ends its quantitative easing program this year.
And so with the economy finally appearing to be “fixed” again after so many sluggish years following the crisis, one might be forgiven for seeing the current economic moment as one of serenity rather than sowing the seeds for another downturn.
“The current conjuncture might appear to be a sweet spot for the global economy, prudent policymakers must look beyond the near term,” Obstfeld writes. “Perhaps the over-arching risk is complacency.”
Back in November, we noted that complacency was a growing theme in markets and the economy. And this was even before tax cuts confirmed most market participants’ view that lower corporate taxes were, and would continue to, fuel economic growth and asset-price appreciation.
And with all economic signs seeming aligned for the global economy, it appears this new market theme is becoming a looming market risk.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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