2018 has been a challenging year for many global equity markets. There are three factors that matter most today for global economies and markets:
- Central Bank policy is changing in U.S. – thus allowing interest rates to rise.
- Regulatory and policy changes are very positive for corporate profits.
- Technology is entering a new phase with smarter computers and Artificial Intelligence.
Much in life is a series of balancing factors, some positive and some negative. Two of the three factors noted above are very constructive and positive (Regulatory and Technology) and lead us to believe earnings growth will continue and markets should continue positive. The Central Bank policy is on the surface a negative; however, the new phase is only developing because economies are growing nicely and are strengthening and moving forward. Thus we have a delicate balancing of these positive and negative factors. Another negative factor relates to debt levels in our economy – clearly government debt levels are high and growing. Other segments of the economy are healthy from a debt perspective and thus create opportunities for growth.
We expect markets could be a bit more volatile in the coming months as markets adjust to modestly higher interest rates. There are other reasons to believe that interest rates could continue to remain relatively low. The 30-year U.S. Treasury interest rate is now only indicating a modest yield of 3.36%, suggesting most believe inflation is very contained. There are other productivity factors related to Artificial Intelligence computing and demographic changes that lead us to believe that interest rates could continue to remain at low levels. We do recommend investors expect that markets will have unsettling corrective phases (5-7 percent). We work diligently with you to position your portfolio with the right asset allocation for your goals and situation. We recommend at this point that investors take a longer-term view of markets. We believe the future is bright for our economy and for investors. In the past, in our country we have achieved more than most thought we could. I believe the coming decades will produce even better results.
Thank you for your continued confidence in our team.