In physics, escape velocity is the speed needed to break free from the gravitation of a massive body, without spending additional fuel. In the markets, escape velocity is the economic growth required to escape a recession and return to a normal long run rate.
We estimate escape velocity to be 3.3-3.5% GDP, but we’re expecting something closer to 2.75-2.8% in 2015. We’re likely going to muddle along in low growth, as there’s nothing to power this market a lot higher, especially since it’s not extraordinarily cheap from a valuation perspective.
The rest of the world has not been participating as strongly as, and market leadership has been provided primarily by, the U.S. economy. For markets to really power higher, broader participation from the rest of the world is needed.
This doesn’t necessarily mean recession is imminent; we think the probability is low both in the U.S. and on a global basis. Most of the leading indicators around the developed world are perking up, such as the Eurozone, India, China, and Japan. This generally bodes well for sidestepping a global recession, though the lack of global leadership remains a concern that we continue to keep an eye on.
– Greg Stewart, CIO