- A Global Recession Ahead?
Stocks have suffered lately amid concerns over a slowing global economy and anxiety over a change in Federal Reserve (Fed) monetary policy. However, we don't see another global recession on the horizon.
- No, We Expect Slow and Diverging Growth
While global growth is likely to remain slow, it's not collapsing. In fact, there are a few bright spots, as diverging growth remains a major trend in the global economy. Indeed, a relatively strong U.S. economy should help offset anemic growth in Europe and a slowdown in China.
- Volatility Is Likely to Remain Elevated, But Equities Can Still Push Ahead
Decent U.S. economic growth suggests that the Fed will tighten monetary policy sometime in 2015. As U.S. monetary policy normalizes, we expect volatility to remain elevated relative to the unusually subdued levels of the past several years. Though rates are likely to rise during the remainder of the year, the rise should be modest. Amid historically low rates, U.S. and global equities are still likely to finish the year with returns in the mid- to upper-single digits.
- Stick With Stocks, Selectivity Is Key
While stocks certainly aren't cheap, they still look attractive versus the alternatives. We continue to believe that investors should focus on those market segments that offer relative value, including select international markets; large- and mega-cap companies; and certain cyclical sectors.
- Position Portfolios for Slow Growth
In addition, investors should consider taking on some selective risk in asset classes that can potentially do well amid modest global growth and that have become less expensive. One such asset class: high yield bonds.