Equity markets are doing their best imitation these days of the naive city slicker in the old westerns who is forced to dance to avoid the bullets fired at his feet by the laughing, black-hatted villains.
The villains in this case are the European policy makers steering the world's least-competent financial rescue since at least 2008. When other potential market movers such as better-than-expected U.S. economic data or the latest positive corporate earnings threaten to lift the gloom, the Europeans can be counted on to keep the markets roiling.
Every new twist and turn in the long-running euro debt saga seems to have this effect, no matter how trivial. At one point last week, world equities fell on reports Germany might seek to postpone this past weekend's emergency summit. Stocks then rebounded merely because the politicians agreed to a second crisis meeting this Wednesday. Never mind that they may be no closer to a deal to resolve the festering sovereign debt crisis that threatens to shatter their cherished monetary union and the euro itself.
At some point, though, barring a complete catastrophe, markets will simply ignore the European circus and get back to more important concerns: Will the global economy keep expanding? Will China be able to engineer a soft landing? Can corporations continue to churn out remarkably robust profits? Will Apple without Steve Jobs still reign over the technology landscape?
The answer to all of these is yes, says market veteran Bob Turner, whose firm, Turner Investments, manages $14-billion (U.S.) of other people's money from its base in Berwyn, Pa., near Philadelphia. His international client list includes Canadian, European and Australian institutional investors, as well as sovereign wealth funds.
Europe's troubles remind Mr. Turner of what befell Japan. In the 1980s, the then-booming country accounted for about 45 per cent of global market activity. And in 1991, at the beginning of a long decline, its share of global GDP was about 18 per cent, up from 10 per cent in 1980. Today, after two miserable decades, Japan's share of global markets is closer to 10 per cent and its economic output amounts to less than 6 per cent of the world total. In the meantime, the rest of world has done reasonably well. "That's where we are with Europe," Mr. Turner says.
He suspects that if we talk a year from now, "not a lot will have changed." At that point, Greece will probably have defaulted. Other problem countries like Italy will still be muddling through and the European economy will be sluggish at best. "What you hope is the rest of the world makes up the difference," Mr. Turner says.
He is decidedly upbeat about those prospects, mainly because he expects corporate earnings to hold up well, particularly among companies with large global footprints and because of strong growth in the technology sector, which he has closely tracked for more than a quarter-century.
"As growth stock managers, we have to be natural optimists, which we are," he says. "There are challenges, clearly. But at the end of the day, we're going to continue to have growth globally."
So far, the figures support his positive outlook. Of the more than 100 companies in the S&P 500 that have reported third-quarter earnings, about 70 per cent have come in above analysts' estimates.
Some economy watchers have argued this can't be sustained, because economies are slowing to a standstill, U.S. consumers remain on the sidelines and jobless rates continue to rise in key industrial economies.
But Mr. Turner disagrees. "We're not making the case the stock market is going to double from here. We already had that off the [March, 2009]bottom. But people have consistently underestimated the earnings power of these companies."
The key for investors is to identify those able to boost market share and profits in the midst of the challenges facing the global economy. Several of those can be found in tech land, where two new drivers of profit growth, mobile computing and cloud computing, have emerged.
On the mobile front, it's all about smart phones, which account for only just over 10 per cent of the handset market. "Ultimately, everyone is going to want that computer in their hand, which will be a smart phone. We'll see the market grow by north of 20 per cent a year," which in turn will vastly increase the flow of wireless data.
Cloud computing allows users to tap into remote computers, storage and software. Most organizations "really shouldn't have their own hardware and software on their premises," Mr. Turner says. "It's more efficient, cheaper and more secure to do computing in a cloud environment. We're just gradually moving there."
The result will be another surge in tech spending. Estimates are that the level will rise by 5 per cent or more next year. And the big winners will score 20- to 30-per-cent gains. Of course, the biggest losers will see dramatic declines of similar size. Which is why tech investors must always be "highly selective" and do their homework. "If you owned RIM this year rather than Apple, you weren't in very good shape."