US economic outlook vs the rest of the globe is brighter than it’s been in 12 years

The results come just a year after global synchronized growth was one of the market’s biggest stories. Economies were thriving together for the first time since the recession, sparking a rally in risk assets around the world.

Now, much of the global economy is sinking while the U.S. continues to rise.

The International Monetary Foundation recently cut its outlook for the world economy in 2018-19 by 0.2 percentage points to 3.7 percent. At the same time, U.S. GDP rose an average 3.2 percent in the first half of 2018, and the Atlanta Fed is projecting the third quarter to come in at 4 percent.

Investors are most worried about a global trade war as the Trump administration uses tariffs to try to close its trade deficit, particularly with China. However, fears about the conflict are declining as respondents turn to concerns that the Federal Reserve may make a policy mistake by tightening too quickly.

That jibes with indications company executives have been giving during earnings calls so far. Goldman Sachs found that during the nascent third-quarter reporting period, more officials are expressing concerns about rising currencies, particularly the U.S. dollar, than tariff issues.

The Fed has been raising rates in a gradual, steady manner, and Chairman Jerome Powell recently jolted markets when he said there is a good distance to go yet before rates stop increasing. In addition to hiking its benchmark funds rate, the Fed has been reducing the size of its balance sheet by allowing up to $50 billion a month in proceeds from bonds it holds to run off in a process nicknamed “quantitative tightening” or QT.

A slowdown in China ranks third among investor concerns.

Stocks have been volatile over the past two weeks, though the pessimism may not have reached a point yet to turn the latest market selling around.

“Investors are bearish on global growth, but not bearish enough to signal anything but a short-term bounce in risk assets,” Michael Hartnett, chief investment strategist, said in a statement.

Fund managers have cut their exposure to global equities; current positions are at a net 22 percent overweight, just 3 percentage points higher than July’s recent low of 19 percent. Allocations to U.S. stocks also tumbled to a net 4 percent overweight, a 17-point drop, as fund managers see domestic equities as “very overvalued.”