Be less anxious. While global growth has been tepid, during this period corporations have remained focused on lowering expenses and thereby enhancing returns to shareholders. Due to worldwide Quantitative Easing (QE), all G7 countries (U.S., U.K., France, Canada, Italy, Japan, and Germany) and BRIC countries (Brazil, Russia, India, and China) are experiencing economic expansions. This synchronous expansion may support growth possibly through 2019.
Strong underlying fundamentals should drive further upside for new economy stocks in technology, companies benefiting from a pickup in discretionary spending, and companies that naturally benefit from increases in interest rates and less regulation; financials.
Meanwhile, bonds and bond proxies remain uninspiring. It’s a crowded trade. People want safety. But bonds and bond proxies only remain safe if interest rates do not rise. So with the Federal Reserve planning to raise rates in December and beyond, bond proxies (telecommunications firms, utilities, and REITs) will likely remain under pressure.
Meanwhile, Credit Suisse (CS) has new targets for the S&P 500 for 2017 and 2018. For 2017 their new target is 2,600 and for the year 2018, their target now rises to 2,875, suggesting an estimated increase of 12.7% over the next 15-month time frame from the current level of 2,550. We shall see.
This CS research prediction is predicated on “a supportive economic backdrop, with benign recessionary risks, and a pickup in near-term indicators.” The larger economic backdrop is for muted long-term growth and an extended business cycle. CS breaks down this bullish forecast in three ways, which they illustrate in Figure 3 as groups of factors within near-, intermediate- and longer-term views.
As to sentiment, investors remain well-anchored in their longer-term expectations for modest and secular growth. This explains why industrials, materials and discretionary stocks have performed in-line with the market, despite a recent uptick in sanguine data. Despite this Credit Suisse research believes interest rates will continue to drift higher.
Thank you for your continued trust.
Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter may not reflect the views of Bolton Global Capital or Bolton Global Asset Management. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0224