We’ve been writing about a slowing growth profile for weeks, and yesterday brought more evidence that the economy has clearly entered a soft patch. We are currently scrubbing the weight of the evidence and puzzling through whether we believe this slowdown is transitory or here to stay.
But while the news flow is getting a bit more negative, it’s also a time to look for the other side of the argument, and make sure that we are not missing positive data points that are getting no coverage as the press jumps on the recent weakness in the numbers. One of the things I’ve been watching recently has been the resilience in the relative performance of emerging vs. domestic equity markets. As shown in the chart below, emerging market stocks have recently been gaining ground on U.S. stocks, which I’d take as an on the margin positive since they’ve been an engine for growth and are thought of as market leaders during this cycle.
There is clearly no reason right now to be complacent, and the recent outperformance by emerging markets could simply be a very short term counter trend rally that fails miserably in coming days. The point of this blog is that it’s always important to consider bullish and bearish points of view, particularly at times when the news flow starts tilting heavily in one direction.