Economic trends support stocks

05.05.2017
Right now, the leading indicator for the OECD area continues to rise, and this generally applies across regions.

Looking at OECD's leading indicator for the entire OECD area, it is now over 100, and it will most likely continue to rise soon, as there is typically some inertia in these movements. This means that we have moved into the expansion phase, where returns for the risky asset classes are quite good, but slightly less than in the swelling phase, which we just came from. 

If we look across asset classes, it is remarkable that especially long-term bonds (and, in part, investment grade) have a lower return than their long-term trend in this phase. Also, government bonds in Emerging Markets may suffer from lower re-turns and increased volatility. 

Because of this macroeconomic environment, one should keep a continued overweight of shares, which is supported by our MomVol indicator.

More interest-rate hikes in the US in 2017? 

At present, the interest rate market almost precisely expects an interest rate hike from the US central bank for the rest of 2017, so we would end at 1.25%. The problem for the central bank is that inflation, as mentioned above, already appears to be moderating and, in any case, remains below the bank's long-term target of 2%. 

This has already led to remarks that the central bank might completely cancel more interest rate hikes in 2017. However, as the US labor market is approaching a historically tight level, it is not necessary until we finally see the wage pressures that analysts have predicted for several years.

Read the Monthly economic report here