The equity market has been surprising forecasters since it hit bottom in March 2009, as market seers have repeatedly shortchanged this relentless bull market by underestimating the resilience of business and consumer fundamentals and overestimating the global risks.
One reason for the “unpredictable” rallies is the emergence of long-term drivers of market performance that we call “tectonic shifts.” Traditional short-term market forecasts typically ignore slow-moving, hard-to-measure trends whose impact on the global economy is somewhat obscured. However, it is these themes lurking below the surface of forecasting methodology that have the potential — like continents colliding with explosive intensity — to change the face of the earth. We regard these tectonic shifts as a meaningful part of the upside in advancing corporate earnings, broadening manufacturing, consumer strength and global market resilience in the face of the Armageddon scenarios favored by the financial press.
Of the four tectonic shifts described in our 2012 forecast — global trade, technology, frontier markets and energy — none has had a more profound and immediate impact than energy, which has progressed even faster than we anticipated at the beginning of the year.