Global markets: 10 expectations for 2018

Download PDF

2017 was a positive year for the economy and capital markets. The global economy grew at a faster pace than in 2016, and risk assets also rose significantly. However, investors are wondering whether the current environment will continue through 2018. Following are my 10 key expectations for the new year:

1. Upward bias for stocks globally.

As we enter 2018, there are two key drivers creating an upward bias for stocks and other risk assets globally: improving global growth and the continuation of accommodative monetary policy. These are two very powerful influences that I believe should support risk assets in general and stocks in particular. Now, that doesn’t mean we won’t experience a correction, particularly in the US, but it does suggest it could be more short-term in nature.

The eurozone, Japan, the US and a number of emerging markets are experiencing rising growth, and that dynamic is likely to continue well into 2018, although there will likely be hiccups along the way. In addition, earnings growth is solid and improving in most major markets; this should also be supportive for global stocks. At the same time, most of these economies are experiencing relatively low inflation, which gives central banks more flexibility to remain very accommodative.

2. More disruption and greater volatility.

Disruption — both positive and negative — is abundant right now, which increases the chance that volatility will rise from its extremely low levels.

Geopolitical disruption. Tensions are rising in a variety of places around the world, from North Korea to Saudi Arabia. However, geopolitical disruption typically doesn’t impact the stock market unless it becomes extreme. And, if it does have an impact, it’s usually short-term in nature. What I worry more about is the potential for countries around the world to adopt more protectionist policies in response to the geopolitical disruption created by nationalist movements intent on de-globalization. We can’t forget that many economists blame protectionism for exacerbating the Great Depression in the 1930s, and we can’t ignore the threat of protectionism that is very real today.

 

To continue reading, click Download PDF