By Steve Goldstein, MarketWatch

Bloomberg News/Landov
First, the good news — though it’s not great. In a new forecast, Oxford Economics expects the global economy to stabilize in the first half of next year.
“We believe the economy is bottoming out at close to its new structural rate of growth. Poor demographics, the cumulative effect of years of weak public and private investment and the ongoing weakness in productivity mean that we are going to have to get used to lower growth,” the Oxford Economics team writes. If a recession occurs, it will more likely be a 2001-style mild one rather than a 2008 bloodbath.
Now for the bad news: financial markets are overvalued, according to Oxford Economics. “The twin pressures of weak pricing power and low productivity imply a bleak outlook for margins – warning signs of a market that seems to have got ahead of itself,” it says. The expected return for U.S. stocks next year, according to the Oxford Economics model and our call of the day , is just 1%, and nothing at all for bonds.

Innes McFee, managing director of macro and investor services at Oxford Economics, said U.S. stocks are overvalued by around 35%. So if there is a recession, a correction might hit stocks by that amount or even more.
He also pointed out that in the seven times when global GDP has slowed by 1% since the 1980s, G-7 central banks have cut interest rates by an average of 300 basis points. They clearly won’t be able to do that this time around, since the average interest-rate level right now is 75 basis points. “There is not a lot of room to maneuver,” he said. And it may be that policy rates are less effective than in the past in stimulating the economy.
The buzz
Optimism was in the air after White House economic adviser Larry Kudlow told the Council on Foreign Relations that the “mood music is good” on reaching a potential early-stage U.S.-China trade deal.
The latest economic data showed that retail sales in October rose 0.3%, though not much at all when autos and gasoline were excluded. A measure of New York-area manufacturing showed tepid growth in November, and industrial production in October was the worst in 17 months after the GM strike.
Amazon /zigman2/quotes/210331248/composite AMZN +0.01% plans to protest the award of a 10-year, $10 billion Pentagon cloud-computing contract to Microsoft /zigman2/quotes/207732364/composite MSFT +0.54% that many assumed would go to the online retailing giant.
Nvidia /zigman2/quotes/200467500/composite NVDA -0.10% forecast a return to revenue growth after four quarters of decline as the chip maker beat estimates for its quarterly results.
The world’s largest Starbucks /zigman2/quotes/207508890/composite SBUX -0.18% store is opening, in Chicago. RH /zigman2/quotes/200286355/composite RH -0.05% shot up in premarket trade after a filling showed Warren Buffett’s Berkshire Hathaway is building a stake in the furniture retailer.
BT /zigman2/quotes/209006687/delayed UK:BT.A +7.01% shares fell in London after a proposal by the opposition Labour Party to partly nationalize it.
The markets
After yet another day of nearly no movement for the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.18% on Thursday, U.S. stocks /zigman2/quotes/210599714/realtime SPX -0.22% /zigman2/quotes/210598365/realtime COMP +0.0029% traded at new records on Friday.






















