Our global team of investment strategists warn that investor expectations have run ahead of market fundamentals in the global equity markets. They maintain a call for caution as inflated expectations for global growth and U.S. fiscal policy drive markets higher, despite looming global economic headwinds.
In the medium-term, they are not bearish; the U.S. economy shows relatively low recession risk and Europe can maintain above-trend growth, while emerging markets are showing resilience to U.S. dollar (USD) strength and U.S. Federal Reserve (the Fed) tightening.
Key forecast highlights that our strategists expect to unfold in the months ahead include:
- Emerging markets (EM) exports continue to strengthen
- Equity markets look deeply overbought with the U.S. most vulnerable
- Political risk will likely be much lower than feared for Europe
- One more U.S. federal funds rate hike forecast for 2017
- Expectations of low returns and high volatility in the Asia-Pacific region
- Lowered potential recession risks in the U.S. economy