David Sloan, Senior Economist at 4CAST, on Equity market
Analysts at Barclays have recently released a Global Outlook, forecasting a rather modest 4% gains for global equities. Larry Kantor, Managing Director and Head of Research, says: „We see a flat US market but better prospects in non-US ones... the market continuing to oscillate around the 2100 level for the S&P500, as slowing EPS growth and prospects for higher interest rates combine with a full valuation.” Do you support those forecasts?
I do think the mentioned forecasts are reasonable, however, I would be a little more cautious on the overseas outlook. As a matter of fact, the US economy is quite strong, yet, the equity market is going to be restrained by the uncertainty surrounding the Fed policy. In case the Fed will tighten the policy this year, then there will be some negative response from the equity market. Particularly, if the key rate moves sooner than expected or if a second move will follow at the end of the year.
As for the overseas prospects, I would be skeptical about looking for strengths, as there is currently a lot of uncertainty regarding Europe. Respectively, the Greece situation does not look like it is going to be resolved any time soon in any positive way if resolved at all. In addition, there is also an uncertain prospect on the Chinese economy, even though the US economic outlook is solid, the equity markets will probably be fairly flat and even a little negative.
Since the ECB’s monetary growth acceleration, a lot of economists and financial institutions believe it is having a noticeable impact on future growth, which favour European equities. However, Greece’s unability to meet its debt obligations and make structural reforms, creates worries of default and Euro zone exit. How could this affect the market? Where should investors head to for bigger returns?
Currently this is a rather difficult question, since the Greece situation is so uncertain. I think before the new government was elected in Greece, generally the Euro zone seemed to be returning to growth and bond yield had come well off the highs. At the moment, the Greece prospects does not seem to have spread very much to other vulnerable countries within the Euro zone like Portugal or Spain. In case the Greek situation could be resolved with a long-term sustainable deal, then we could see a positive outlook in the Euro zone renewing.
As for where we should look for positive returns, it is difficult to see areas or countries, which are performing stronger than the US, even though it will be restrained by the Fed changes. Canada is one country that could do quite well, as their Central Bank is not likely to be tightening for some time. Generally, the market is sensitive to Fed risks and the risks in China.
What should investors stay focused on in order to properly diversify their portfolio?
I assume it is better to look at the longer-term prospects, and probably expect the need for taking short-term hits. I see the long-term outlook for the US economy is brightening, though there will be volatility seen once the Fed tightens. Yet, in 2016 and 2017 the Fed is not going to be very aggressive and after the initial nervous reaction to the first moves in 2015, we could see a positive outlook being reestablished. Therefore, what investors should do, is take the long-term view and be patient, while bracing themselves for a stormy period in a short-term.
This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.0800 after upbeat US data
EUR/USD stays under bearish pressure and trades slightly below 1.0800 in the American session on Thursday. The data from the US showed that the real GDP growth for the fourth quarter got revised higher to 3.4% from 3.2%, supporting the USD and weighing on the pair.
GBP/USD stays in daily range above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth helps the USD stay resilient against its rivals and limits the pair's upside.
Gold price holds strength ahead of US core PCE inflation
Gold price holds onto gains near $2,200 in Thursday’s European session. The precious metal exhibits firm footing ahead of the United States core PCE Price Index data for February, which will be published on Friday.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.