Maintain overweight in stocks, so far

In economic terms, 2014 through 2016 was a relatively uninspired period. Growth in the US and Europa never dropped into negatives, although it sometimes felt that way. Instead it was generally dull and waning, and manifested itself in the decline of leading indicators, long-term interest rates, inflation and earnings growth, writes chief strategist David Bakkegaard Karsbøl in his latest monthly comment.

The election of Donald Trump may have provided some momentum for smaller US companies that see better opportunity now that there is a higher probability that environmental and energy regulations will be rolled back. But in reality, business leaders were probably being over pessimistic in the middle of 2016.

There is no doubt that we are seeing a dramatic improvement in economic growth potential in the United States in the last few months – driven by fiscal policy, tax reform, monetary policy and deregulation, especially of the financial sector. My assessment is that this will continue in the United States over the summer. For most US companies, there will be nothing but growth in sight, and it can manifest itself in euphoric surveys, which we have already seen. 

Our MomVol indicator assumed a value of 0.85 at the end of February. This is an increase from the end of January and still firmly above the threshold of 0.6, below which, you should have an underweight in the stock market. 

The indicator's signal is also supported by the fact that most of the OECD leading indicators are pointing upwards. An overweight in stocks should therefore be maintained in March.

Read the Monthly economic report here


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