Last month, we highlighted our outlook for the second half of 2017.
The dominant market themes in our view include:
- Stretched valuations for virtually every major asset class as measured by yield levels for sovereign bonds, credit spreads for the corporate sectors, cap rates for real estate, and most price metrics across equities (P/E, P/B, P/S).
- A synchronized but gradual improvement in global economic activity including the US, Europe, Japan, and emerging markets (bolstered by China).
- Low market volatility across stocks, bonds, and currencies largely as a result of the factors above – improving fundamentals limit downside risks while elevated valuations cap upside gains.
- Global central banks are entering a phase of “less accommodation” that is still a long way from being “restrictive.”
- Political and geopolitical risks are rising as the Trump Agenda (presidency?) is in trouble, tensions between the US, Russia, North Korea, and Europe are growing, Brexit gets uglier, and skirmishes continue to break out across the Middle East.
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