There has been some debate about the outlook of the economic cycle. Some will argue that we are at the peak of the bull market, we wholeheartedly disagree.
The U.S. economy is now in what we economist like to call the late-cycle. Growth peaks and accelerated inflation are two characteristics of the late-cyle, demanding attentiveness from investors.
We believe the economy is supportive of further upside for asset markets.
During the year 2017, investors witness the most coordinated above-average global growth performance in a decade. Market indicators suggest this pattern will continue in the first half of 2018, but it is undoubtedly not without risk.
Outlook & things to watch for 2018:
- Oil supply
- Unemployment rate
- Federal Reserve
- Brexit
- Trump Administration
The focus for most central banks globally is maintaining stability while simultaneously avoiding asset bubbles.
What does this mean for asset allocations?
We believe the current cycle reinforces our recommendation to diversify across asset classes, sectors and geography.
Historically, stocks outperform other assets during this period and we see no reason for this to change.
We expect the Fed, regardless of leadership, to raise rates modestly. That being said, a balanced portfolio of stocks and bonds will provide the best outcome for investors in our opinion.
The most significant risk for investors in navigating this cycle is exiting too soon. The late-cycle equity returns are often substantial, and the opportunity cost of missing out can more than offset a drawdown that might be subsequently avoided.
Investors should pay keen attention to policies, market sentiments as well as be vigilant in this market.
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