2018 Global Market Outlook

Posted on January 5, 2018 in:

Running with the bulls

Our central view is that equity markets can push higher before facing headwinds later in 2018 as markets factor in rising risks of a 2019 recession. Running with the bulls can be dangerous. It’s easy to get swept up in the elation of the crowd and underestimate the risks.

Markets have turned optimistic, but it’s late in the cycle and central banks are becoming hawkish. The challenge ahead is to safely navigate between euphoria and danger.

Golden Oldie

By rights, the current market cycle should be shuffling into retirement, putting its feet up and taking things easy. It is, after all, nearly nine years old, the second-longest bull market on record and positively geriatric by the standard of these things.

But this cycle belongs to the baby boomer generation, and like them, refuses to succumb to dotage. It’s having a vigorous later life while frittering away the next generation’s inheritance. This raises a critical issue: how to make the most of late-cycle returns while preparing for the inevitable downswing? Late cycle can be the most challenging phase. Valuations are stretched, central banks are taking away the punch bowl and fundamentals look long in the tooth. But markets may surge as investors, buoyed by their recent success, become overconfident and start believing (again) that this time is different.

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