Quarterly Outlook remains cautiously optimisticQuarterly Outlook January 2018
The Quarterly Outlook of Ortec Finance remains cautiously optimistic for the short term. The global economy continues to perform solidly, but at the same time there are reasons to keep optimism in check over the medium term.
Global growth continues solidly
The Quarterly Outlook is based on Ortec Finance’s scenario approach. The December 2017 edition incorporates all information that was available at that time. In the fourth quarter of 2017 economic growth continued to perform solidly and broad-based in developed as well as developing countries. Unemployment levels are low and declining. Investors remain optimistic and producer and consumer confidence is high. Most equity markets had another strong quarter, marking the fourth consecutive quarter of positive equity returns, while volatility levels remain subdued.
All in all, we see a further improvement in the state of the business cycle combined with positive momentum on a one year horizon.
Short term optimism versus medium term fundamentals
Short term expectations are mostly positive. Economic growth is solid, inflation levels are low and normalization of monetary policy is expected to proceed only slowly and cautiously. At the same time return momentum is positive while the search-for-yield continues and we lack a foreseeable catalyst for a short term market correction.
For the medium term of three to five years however, the fundamentals point to a more cautious outlook. We are approaching a cyclical state of the global economy and financial markets that is clearly in positive territory. Many economic drivers of the recent optimism are cyclical in nature and, given their current levels, forward-looking they have less room for further improvement. If history is any guide, than applying historical business cycle dynamics on the current situation teaches us that going forward we should expect returns to decrease as these cyclical measures normalize. This results in an outlook with lower expected returns for the medium term.
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The complete December 2017 Quarterly Outlook can be found here. For clients a more elaborate version is available which includes risk and return across asset classes, regions and horizons.