Wealth Management: Market Perspective – Keeping at it | Life after debt (en anglais uniquement)
Kevin Gardiner, Global Investment Strategist, Wealth Management
What a difference in mood. The worst December since 1931 for US stocks was followed by the best January since 1987. We thought stock markets were overreacting in late 2018, but won't pretend we expected such a fast rebound.
From current valuations, inflation-beating long-term returns are still available, but as the cycle matures, it's getting more difficult. Almost exactly 10 years on from the Global Financial Crisis (GFC) low point, the likely headroom is smaller than it's been for, well, a decade or so.
The global economy is not collapsing, but has slowed from its unexpected synchronised spurt just over a year ago. Eurozone data remain among the weakest, though there may be some temporary factors at work. Corporate earnings must slow more sharply than economic growth, however, which may worry investors until it's clear that a big recessionary reversal is not at hand.
The Federal Reserve (Fed) has put monetary policy normalisation on pause remarkably quickly, which is doubtless helping both stock and bond markets in the short term. We wonder whether the Fed should perhaps have been 'keeping at it'. While stocks look reasonable value, US bonds now look a bit expensive again (and most European government bonds have looked prohibitively pricey throughout).
Longer term, one of several reasons for continuing to give economies the benefit of the doubt is that we think structural worries are overdone - including those focused on debt, which we discuss in the second essay.
Geopolitical risk - US/China trade tension, les gilets jaunes, UK secession from the EU - remains elevated, but manageable. We suspect that is true even of a no-deal Brexit, though we still hope - and, with little conviction, expect - not to find out.
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