The global economic expansion has already entered its 10th year. With bumpy and brittle growth having given way to a robust and globally synchronized conjuncture, an aging cycle has suddenly become much more cyclical.
Stormy weather was abundant in March: spring snowstorms in the Northeast of the U.S., a trade tussle with China that could escalate into a trade war, hawkish personnel changes in the White House, a Powell-led Federal Reserve that expects to overshoot the neutral policy rate, and the worst week for U.S. equities since January 2016.
The global expansion is either nearing its demand-driven peak or in the early stages of a supply-driven renaissance. We share our assessment and portfolio positioning.
Investors in Europe are more optimistic than they have been in years, but there is growing concern that U.S. dollar weakness could make the euro too strong.
The conclusion from PIMCO’s latest Cyclical Forum is that 2017–2018 could well mark the peak for economic growth in this cycle and that investors should start preparing for several key risks that lie ahead in 2018 and beyond.
We expect the global expansion to continue in 2018. Yet investors should prepare for both the consequences of policy shifts and the opportunities presented in more difficult market conditions.
We see three risks to the outlook for steady economic growth. Yet we also see opportunities for investors to target above-benchmark returns while emphasizing defense at a time of low volatility and full valuations.
Following another underwhelming U.S. CPI report, it’s now entirely possible that core personal consumption expenditures (PCE) inflation – the Federal Reserve’s preferred measure, currently at 1.5% – will end the year at 1.3%, a far cry from the central bank’s 2% target.
Over the past quarter century, large and ever-larger companies have significantly increased their share of total intra-industry sales across a majority of industries. These superstar firms – including Facebook, Amazon, Apple, Netflix and Alphabet’s Google (known collectively as FAANG) – increasingly dominate their respective industries in terms of revenues, profits and stock market capitalization. The winner these days may not take all, but most.
Much of the world has been waging a cold currency war since the autumn of 2016, and so far the winner is Donald Trump. The dollar rally that followed the U.S. election is over, and this past week the U.S. Dollar Index (DXY, which tracks the dollar’s value versus a weighted basket of major currencies) sank to its lowest level in more than a year.