- The global economic picture is brightening. Global equity markets should benefit from improving economic activity.
- Market trends suggest better values may be found abroad, presenting opportunity in Europe and emerging markets.
- Interest rates are gradually rising. Bonds can still play a key risk-dampening role in most portfolios.
- Fundamentals trump politics. Global diversification can help offset localized political risk.
Global Economies and Markets: Momentum Builds
For the first time in years, the world’s major economies all appear to be on the road to recovery.
Nowhere is economic momentum more evident than in the U.S., where the economy is gaining strength and seeing more sectors participate. Since the end of the Great Recession, the U.S. recovery has largely been driven by a resilient consumer. But more recently, manufacturing has turned around. This should be supportive of equity markets barring any unexpected shocks or policy missteps.
That said, a look at the world’s market capitalization levels shows the U.S., at 53%, nearing the top of its historical range while overseas markets are near lows. Europe appears to have turned a corner and is poised to play catch-up.
With China stabilizing, emerging markets are roaring ahead and appear to have more room to run. Given the relatively wide chasm in valuation between U.S. and international stocks, it may be time to rebalance portfolios toward markets outside the U.S.