1st QUARTER REVIEW - OUTLOOK
Volatility returned to global financial markets during the first quarter, which saw the broad U.S. equity market post its first quarterly decline since the third quarter 2015. After steadily moving to new highs through January, U.S. equity markets suffered a setback in early February amid concerns over a more aggressive path of interest rate increases from the Federal Reserve. Fears over a potential trade war, turnover in the Trump Administration and souring sentiment on technology stocks were also key drivers of market sentiment during the period.
Some of the key developments included:
- Equity market volatility returns
- Possible end to the long-term bond bull market
- Synchronized global growth continues
- Earnings picture looks good for 2018
- Equity valuations are more in line with 25-year average
Looking ahead, risks of an economic slowdown may rise over the second half of the year, but our indicators continue to point to a low risk of a recession unfolding this year. Valuations have come down some and are at more attractive levels than they were a year ago given the improving earnings picture. This, plus the fact that we saw little change in the positive fundamental backdrop, leaves us favoring risk assets. Nevertheless, we expect to see the continuation of higher volatility with the key risks facing the economy and risk assets being a faster pace of interest rate increases from the Fed, the potential for earnings disappointment and the possibility of a lasting trade war.
To read more about our outlook, please click this link.
Brett Lapierre, CFA, Investment Analyst
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