Second, investors have recently been focusing on the rebound in value stocks. While value as style has indeed done better as recession fears have faded, maintaining the rally will require value companies to demonstrate some improvement in depressed earnings and historically low profitability. That is much less likely in an environment in which manufacturing activity is still contracting. If the value rally is to continue, that will need to change.
In short, future gains in stocks depend on an upturn in earnings growth. In the meantime, investors ignore the manufacturing recession at their own risk.
Russ Koesterich, CFA, is head of asset allocation for BlackRock’s Global Allocation Fund.