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5 Reasons Investors Should Give Thanks

5 Reasons Investors Should Give Thanks

Key Points
  • The record breaking streak of gains in the global stock market this year has been supported by the broadest global economic growth in a decade.

  • Stocks appear to closely track earnings growth, even where risks are most intense.

  • Broad economic and earnings growth is expected to continue in 2018.

Stock market investors have a lot to be thankful for this year. Here we offer five things global stock market investors can give thanks for this holiday season.

1. Stocks up every month

This is the only year that the global stock market has posted a gain every single month in the 30 year history of the MSCI AC World Index, as you can see in the table of monthly returns below.

2017’s uninterrupted and unprecedented streak of monthly gains for global stocks

monthly gains for global stocks

Monthly performance of MSCI AC World Index.
Source: Charles Schwab, Factset data as of 11/1/2017.

Global stocks may be on their way to posting a gain every month in 2017. For November, stocks are up month-to-date and history shows that December has been the most consistently positive month of the year, although of course history is no guarantee of future performance.

2. Every major economy is growing

This exceptional string of stock market gains begs the question: why this year? The biggest reason may be that global economic growth has been just as exceptional. Every one of the world’s 45 largest economies tracked by the OECD (Organization for Economic Cooperation and Development) are growing this year and are expected to post another year of growth in 2018, per OECD forecasts, as you can see in the chart below. It has been a decade since we last saw annual growth for every major economy. From 2008 through 2016 many of the world’s largest economies experienced recessions, acting as a drag on corporate earnings growth and stock market performance.

Global economic growth is the broadest in a decade

global economic growth

Source: Charles Schwab & Co, OECD. *OECD forecasts for 2018, except 10 major non-OECD countries use Bloomberg consensus. As of 11/1/2017.

3. Earnings hit a new all-time high

So it appears that all the green in 2017’s monthly stock market returns is supported by all the green across the world’s major economies. Connecting the economy and stock prices is corporate earnings. The broadest economic growth in a decade is lifting earnings per share for global companies above $30, a level first reached about 10 years ago. Stock prices have closely tracked the rise in earnings, as you can see in the chart below. 

Earnings trump politics when it comes to driving stock prices

MSCI World EPS vs MSCI World Index

Source: Charles Schwab, Factset data as of 11/1/2017.

4. Stocks less vulnerable to risks

Stronger growth has been driving the stock market and resulting in stocks being less vulnerable to risks from politics, central bank actions, or geopolitical conflict. Stock prices have tracked earnings growth closely over the past year even through developments like the Brexit vote, US election, shifts in central bank policies, and rising tensions with North Korea. This has even been true where geopolitical threats are greatest. South Korea’s stock market, as measured by the KOSPI Index, has tracked earnings growth consistently despite the threat posed by North Korea’s nuclear weapons program.

Stock prices are tracking earnings growth even where geopolitical risk is most intense

KOSPI ESP vs KOSPI Index

Source: Charles Schwab, Factset data as of 11/1/2017.

5. Global economy may accelerate in 2018

Historically reliable leading economic indicators, including the yield curve, are not pointing to signs that growth is coming to an end. In fact, after cutting 2017 and 2018 forecasts for GDP growth for the past two years, economists recently have been raising these forecasts for global economic growth, as you can see in the chart below.

Economists’ are revising up their forecasts for global economic growth

World GDP forecast 2018 vs 2017

Source: Charles Schwab, Bloomberg data as of 10/11/2017.

One reason economists have been raising their forecasts is this year’s economic growth, which has been consistently exceeding their expectations for the first time in many years. The global Citigroup Economic Surprise Index, which is above zero when economic data is exceeding economists’ forecasts, has been positive on average so far this year. It had been negative for each of the past six years, when actual data fell short of estimates, as you can see in the chart below.

Global economic data is exceeding economists’ expectations in 2017 for first time in years

Global Citigroup Economic Surprise Index

Source: Charles Schwab, Bloomberg data as of 10/11/2017.

Investors shouldn’t expect every month ahead to continue to be green for stocks. But they can take comfort in that the green so far this year is well supported by the best global growth in years, driving corporate earnings to new highs. And that is something to be thankful for this season.

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Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The MSCI ACWI captures large and mid cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries*. With 2,490 constituents, the index covers approximately 85% of the global investable equity opportunity set.
The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges.

©2017 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

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