Global Equity Views 1Q 2018Contributor Paul Quinsee
Themes and implications from the Global Equities Investors Quarterly
- A potent mix of strong economic growth, robust corporate profitability, subdued inflation and still very low interest rates has driven equity markets sharply higher over the past year, with very little volatility.
- We still see further gains ahead in this cycle until interest rates move a good bit higher and/ or a recession looms on the horizon. But after an exceptionally calm year, volatility will surely rise (as is now happening).
- The outlook for corporate profits remains very healthy. We have already seen a greater propensity by company managements to increase both capital spending and hiring, while tax cuts are providing a powerful additional tailwind to U.S. corporate earnings in 2018.
- From a regional perspective, we see the best prospects in emerging markets, where corporate profitability and valuations still have room to recover. From a global sector perspective, we see further outperformance in financial and cyclical stocks, while technology shares look more fully priced these days after an exceptional run.
The 2008-09 global financial crisis cast a very long shadow for investors and company managements alike. But that shadow is finally lifting, and equity markets have been boosted by a potent mix of strong global growth, robust profits, subdued inflation and still very low interest rates. A synchronized global recovery is in full swing, and we expect the strong corporate earnings growth we saw last year to be repeated in 2018 and 2019. In the U.S., corporate tax cuts are providing an extra gust of tailwind to an already bright and breezy picture.
The return of volatility appears almost a certainty after one of the calmest years on record, and periodic setbacks are almost certain, as well. But we believe that market gains can broadly continue until interest rates rise much further and/or a recession appears on the horizon. As bottom-up stock pickers, we are still finding good opportunities in emerging markets, financials and cyclicals. The main risks that we see are centered on the transition to less accommodative monetary policy, a transition now underway in the U.S. But stocks still look to be a good value vs. bonds, and overall we expect this transition to be weathered pretty well over the next year or so.
In the following pages of our Global Equity Views, we present our investment outlook, discuss market trends and spotlight opportunities and potential risks. EXHIBITS 1 and 2 present snapshots of our outlook, as they were discussed and debated at our Investors Quarterly in January 2018.
Views from our Global Equity Investors Quarterly (January 2018), Part I
Investing in an Extended Cycle
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