Our global team of investment strategists advise caution in this late-cycle, momentum-driven market. They believe investors in the U.S. market have embraced a type of cognitive dissonance: equity valuations are sky-high, but Treasuries are overbought and low yields warn of lackluster growth. They’d lean out of the U.S. rally and look to buy the next dip or potentially better opportunities outside the U.S. market.
The team sees the strongest tailwinds for equity returns in Europe, followed by emerging markets and Japan. The team also views government bonds as expensive across markets, especially in Germany and the U.K., indicating yields will trend upward in the medium term after remaining in a range for the next few months.
Key global market outlook highlights include:
- Expensive U.S. equities are vulnerable to a pull-back
- Treasuries remain expensive across regions
- U.S. Federal Reserve (Fed) likely to halt Fed funds rate increases for 2017
- Political risk in Europe has diminished, perhaps signaling a Eurozone renaissance
- Lackluster returns in the Asia-Pacific region with developing economies to outperform
- Low recession risk for the U.S. economy continues over the next year