Equity Outlook  |  Q1 2018

World markets enjoy rising GDP but face distinct issues

Equity Team

World markets enjoy rising GDP but face distinct issues

  • The reduction in the U.S. corporate tax rate will clearly provide a boost to profitability, but there are many more ancillary benefits for businesses worldwide.
  • Japan and China offer a complex mix of opportunity and headwinds for equity investors.
  • As passive assets represent an increasingly larger portion of the equity market, investors should consider them as a potential risk.

When a 21% annual gain for the S&P 500 is among the lowest of major global indexes, it is a remarkable year for equity investors. Throughout 2017, investors in most markets worldwide shrugged off geopolitical and macroeconomic risks, embraced equities, and drove markets considerably higher. Most notable was the performance of emerging-market stocks, which continued to rally throughout the fourth quarter and ended the year with a 37% gain, as measured by the MSCI EM Index. Healthy corporate earnings growth and few signs of recessionary trends in most economies worldwide should allow equities to maintain their strength. However, this type of outperformance raises many questions as we begin 2018. How long can these rallies last, are valuations too stretched, what risks remain, and where are the opportunities in the year ahead?