Market Intelligence January 2018
Blackrock, an investment firm managing roughly $6 trillion in assets on behalf of investors globally, recently released their investment outlook for 2018. Richard Turnhill, Global Chief Investment Strategist and his team at the Blackrock Investment Institute, provide a fairly sanguine view of the 2018 markets, recognizing that geopolitical risk and/or a misstep by the Federal Reserve could provide for a much more volatile market in 2018.
The Blackrock Investment Institute is the investment strategy arm of Blackrock, providing thought leadership as well as a forum for portfolio managers across Blackrock to discuss and debate current markets and what the future might hold. Enclosed are three takeaways from their recently published outlook for 2018. (Emphasis by Madison)
1) The current bull market has room to run: “We believe markets are underestimating the durability of the economic expansion. Many investors fear the end of the market cycle is near, as the gap between potential and actual GDP is shrinking in the U.S. Yet economies can run beyond potential for a long time before peaking. All major regions increased earnings more than 10% for the first time since 2005. Spare capacity in Europe leads us to believe that we will see growth for years, not quarters. We believe emerging market stocks will again outperform in 2018 on rising profitability and investors returning to the asset class. Japan could also be particularly well-positioned.”
2) Inflation is set for a comeback: “We see inflation in the U.S. rising back to a 2% target – a turnaround from fears of near-zero inflation or even deflation two years ago. The Fed looks poised to press ahead and deliver three 0.25% rate increases in 2018. In Europe, however, we share the European Central Bank’s view that inflation may be stuck below target through 2019.”
3) Reduce reward for risk: “Valuations of risk assets have risen, market volatility has stayed low, and many perceived risks have not materialized – making markets more vulnerable to temporary sell-offs. While we don’t see any major risks triggering a sustained higher-volatility regime, this is precisely when fixed income as a risk management tool is critical.”
To recap: “A synchronized global expansion has room to run in 2018. Strong corporate earnings and steady growth support our belief that investors will get compensated for risk-taking in equities, particularly outside the U.S. But 2017 will be a tough act to follow. Geopolitical risks, inflation and other factors could make the road ahead more challenging.”