By Jon D Markman
What a difference 12 months can make.Just one year after every national economy on earth was in deep trouble, a powerful global rebound is underway. In fact, the global upswing is a lot stronger than most investors realize.

So don’t let a few days’ decline here and there cause you to lose sight of one of the most important investing trends investors will find today.

According to ISI Group researchers, the transformation has been a dramatic one. A year ago, every national economy on earth was declining at the same time – some dramatically. Today, however, every economy is now improving – though at different paces.

ISI points out that last week’s highlights included China’s third-quarter gross domestic product (GDP) rising at a 12% quarter-over-quarter rate, and Korea’s economy rising at around 8.2%. McDonald’s Corp. (NYSE: MCD) sales in China were reported up 30%. China retail sales are up 24% annualized in the past nine months. And China industrial production is up 21% in the last 10 months. Across the China Sea, export orders and industrial production in Taiwan are up at around a 51% annualized pace.

Over in the developed world, we’re seeing much of the same: The U.S. leading indicators are rising at the fastest pace since 1983. Canadian retail sales are up 3% annualized in the last eight months. And Japanese exports are up at a 31% annualized pace in the past half year, while Australia is smokin’, with auto sales alone up 12% annualized.

Amid this drama, Copper prices are up 120% this year, while commodity memory chips (dynamic random access memory chips, known as DRAM), are up 71%.

Here in the United States, chain store sales are up at a 5.5% pace over the last 10 months and are likely to be much better than the National Retail Federation is predicting, which is negative 1%. And employment? Glad you asked. As mentioned last week, unemployment claims have declined 127,000 in the past six months, which amounts to a faster rate of descent than seen in the last two jobless recoveries.

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I want to throw out a shocker of an idea for you to think about until next time. ISI points out that payroll losses have been improving (i.e. falling less) by 77,000 jobs per month on average over the past six months. If that keeps up, payrolls will rise by 137,000 in January next year. And if that occurs, regression analysis suggests that GDP growth for the quarter will come in at around 4%.

Is it possible? Well, virtually everyone seems to think it’s impossible – which increases the likelihood that it could occur. But if you look at trends of unemployment claims, temp employment surveys, layoff announcement tallies and the like, they are all moderating in syncopation.

Pessimists will call this just a lull and a fake-out, but I would just note that improvements have become the norm overseas. As mentioned last week, ISI reports employment is already on the rise in Sweden, Korea, Brazil, Russia, Finland, Japan, Australia, Taiwan and Canada, in order of strength.

The theory is that employment was cut too much last year as companies anticipated a depression. Models of behavior suggest that employment should have only been cut by 3.5%, and instead almost 6% of jobs were cut away. This is why productivity and earnings gains have been so amazing.

Ultimately, and perhaps as soon as right now, companies will start hiring again to reverse their “throw everything overboard” mentality of last year. That will have the effect of moderating earnings gains, but it will also put money back into workers’ pockets and in turn, help boost revenue.

In summary, don’t let the short-term setbacks we’ve seen of late cause you to lose sight of the big picture: Long-term global growth trends are in place. As shown in the chart above, it would be natural for the rapid ascent of the past eight months to taper off into a sideways consolidation before its next leg higher. A total collapse is always possible, but it’s just not the most likely scenario now, no matter what the bears say.

The Week In Review
Stocks plunged Friday after traders, who were initially excited over Thursday’s news that the U.S. economy is expanding again, woke up Friday with an urge to sell. The Dow Jones Industrial Average lost 2.5%, the Standard & Poor’s 500 Index lost 2.8%, the Nasdaq Composite Index lost 2.5%, and the Russell 2000 lost 3%.

There was no shortage of catalysts for the decline. It was the end of the fiscal year for many portfolio managers, resulting in an increase in selling to lock in profits that will be shown on clients’ October statements. Bank stocks fell on word the government may require them to pay fees to help unwind failed firms, as well as an analyst report suggesting Citigroup Inc. (NYSE: C) might be forced to write off 10% of its tangible equity.

Beleaguered small business lender CIT Group Inc. (NYSE: CIT) inched closer to bankruptcy. It was reported that consumer spending fell in September. The U.S. dollar rose as overseas investors closed out carry trades funded with dollar borrowings. There were reports that Raj Rajaratnam’s Galleon hedge fund complex completed its unwinding process on the last day of the month by dumping tech and emerging market stocks at midday. The list goes on.

As a result, all the major sector groups posted heavy declines. Bank stocks were the biggest losers on the day with the Financial Select Sector SPDR (NYSE: XLF) losing 4.7%. Commodity stocks were also big losers as the U.S. dollar strengthened: The Energy Select SPDR (NYSE: XLE) lost 3.8% while the Materials SPDR (NYSE: XLB) lost 3.6%. Even the defensive sectors were not spared from the selling as utility, healthcare, and consumer staples stocks all posted declined in excess of 1%.

Volume was heavy and breadth was negative – a sign that Friday’s session could prove to be the climactic, panic-driven session needed to clear away sellers and create a vacuum into which buyers can enter. Volume increased 14% over Thursday’s rally session as nearly 1.7 billion shares traded on the New York Stock Exchange (NYSE: NYX). Declining issues outpaced advancers by a 6.8 to 1 ratio while down volume accounted for 95% of total volume. Only 18 components of the S&P 500 managed to close with gains. By every measure, it was a rout.

The good news is that the evidence continues to suggest stocks are not on the cusp of a major price top. Famous last words, right? But really, we’ve yet to see the multi-month degradation in the market’s internal measures of health, including advance-decline metrics and the number of new highs. As the chart that follows illustrates, the major price tops of 2000 and 2007 were preceded by a big, multi-year negative divergence in the number of new highs.

Clearly, this isn’t happening now, as both stock prices and the new high index are rising together – not unlike the situation in 1995 or 2003. This fits with our general thesis: That we may be looking at a 2003-2004 scenario, where the market could be transitioning to a more mature stage of the new bull market, where there will be increased performance divergence between sectors and stocks. A session like Friday does not exactly fit that criteria – because everything went down together – but over the past couple of weeks large-caps and energy have been outperforming small caps and other groups.

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