Moe Zulfiqar: The global economy looks to be in trouble, with the problems brewing quickly. Major economic hubs in the global economy are struggling for growth, but are failing—a fact that is largely ignored by the mainstream.
Long-term investors need to know that an economic slowdown in the global economy can deeply affect the key stock indices here in the U.S. economy. The reason for this is very simple: American-based companies operate throughout the global economy. As a matter of fact, in 2012, for the S&P 500 companies that provide data about sales in the global economy, 46.6% of all sales came from outside of the U.S. (Source: “S&P 500 2012: Global Sales – Year In Review,” S&P Dow Jones Indices web site, August 2013.)
Clearly, if there is an economic slowdown, the demand will decrease and the U.S.-based companies will sell less and earn less profit. As a result, their stock prices will decline.
So what is really happening?
In the beginning of the year, there was a significant amount of noise about how the global economy will experience growth. This did not happen.
The International Monetary Fund (IMF) expects the global economy to grow by 2.9% this year after seeing growth of 3.9% in 2011 and 3.2% in 2012. In 2014, the IMF expects the global economy to increase by 3.6%. (Source: Duttagupta, R. and Helbling, T., “Global Growth Patterns Shifting, Says IMF WEO,” International Monetary Fund web site, October 8, 2013.) Mind you, these estimates were much higher in July, but they have since been revised lower.
We all know how anemic the rate of growth of the U.S. economy really is. Not a lot has changed since the financial crisis other than the value of the stock market increasing and the balance sheet of banks becoming healthy. The average Joe still suffers, unemployment remains high, we have seen an influx of part-time jobs created, and the national debt continues to increase.
China, the second-biggest economic hub in the global economy, is struggling as well. The IMF expects the Chinese economy to increase only 7.6% in 2013 and slow down to 7.3% in 2014. What you need to know is that these growth rates are a little embarrassing for the Chinese economy when looking at the historical averages.(...)Click here to continue reading the original ETFDailyNews.com article: What Could Deeply Affect Stock PricesYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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