Currently, we can have confidence that the world’s two largest economies, China and the United States, will bolster the global economy. The International Monetary Fund upgraded their global growth forecast to 6% for 2021.

From an economic perspective, the developed world has robustly rebounded from the recession caused by the pandemic. China’s Gross Domestic Product grew at 18.3% in the first quarter of 2021. This growth rate is the highest since China began reporting quarterly GDP in 1992. Bloomberg Economics expects China’s expansion to be 9.3% for the full year. The IMF expects that the United States’ GDP will grow 6.4% in 2021.

The European Union, whose GDP roughly matches that of the United States, is lagging China and the United States. Estimates of the disparity vary between 4% and 5%. The European Union’s relatively poor performance reflects a second wave of the pandemic that has forced their economies into a lockdown.

To put China’s stupendous number in perspective, we must remember that much of their economy during last year’s first quarter was shut down because of the coronavirus. Their economy suffered an unprecedented contraction of -6.8%.

China reported that their retail sales beat expectations while industrial output growth moderated. Strong investment in real estate and infrastructure promoted demand for industrial goods. Home sales soared 95.5% in the first quarter. Overseas orders fueled exports of medical goods and electronic devices.

According to the Chinese Ministry of Commerce, overseas investment in China increased to $45 billion (the highest since 2002) in the first quarter of 2021.

In recognition that their economy might become overheated leading to an asset bubble, the Chinese central bank asked their commercial banks to curtail loan growth. Lu Ting, a Nomura economist, wrote that “Considering the robust recovery, we certainly do not expect Beijing to step up easing measures, but it is also unlikely to make a sharp shift in its policy stance.”

What are the challenges facing China?

  • Rising commodity prices
  • Lagging consumer recovery
  • Worries about asset bubbles
  • Rising geopolitical tensions that could hurt trade
  • Falling birthrate

Where are the world’s trouble spots?

Gina Gopinath, chief economist at the IMF, highlighted that not all countries’ economies are rebounding with gusto. She warned “recoveries are also diverging dangerously across and within countries as economies with slower vaccine rollout, more limited policy support, and (that are) more reliant on tourism do less well.” The IMF reported “low-income developing countries will grow at 4.3% in 2021.” Gopinath emphasized emerging markets and low-income countries are expected to suffer the greatest scarring.

Similar to many of you, my interest in economics is fueled by my investments in a broad range of equities. I feel that the findings by BlackRock, the world’s largest asset manager, provides some needed perspectives on the U.S. market.

  • The 2020 bear market lasted only 23 trading days and rebounded 77% over the past year, giving it both the shortest time frame and largest rebound of any bear market since 1950.
  • The largest stocks in the S&P 500 were responsible for driving index returns in 2020. The opposite has been true in 2021, with the smallest stocks driving the largest returns to the index YTD.
  • After months of outflows (9 out of 12 months in 2020) stock fund inflows in February 2021 were the highest in almost a generation.

Unfortunately, we cannot draw any firm conclusion about the future direction of stocks in the near term from the globe’s positive growth outlook. Markets anticipate! We need to be mindful that the extremely strong stock market rally in 2020 took place during a recession.

We can rejoice that the Dow Jones marked its first close above the 34,000 mark. To put this in perspective, when I started my Wall Street career in 1969 the Dow traded near 1,000.

Originally published in the Sarasota Herald-Tribune