When it comes to the global economy, the threat of storm clouds always seems to be hovering overhead. But heading into 2018, investors can see blue skies just about anywhere they look. From reduced political tensions in Europe to reform initiatives in India, to a more stable China, underlying conditions are decidedly upbeat. Indeed, the synchronized global economic recovery is gathering a head of steam.
Much of the good news, however, is reflected in asset prices, as stock and bond markets around the world have delivered positive results for much of the past year. In an environment characterized by healthy underlying growth but relatively high valuations, it is time for balance and flexibility in portfolios. Here are key takeaways and investment implications to consider as you position portfolios for 2018:
- The global economic expansion is gaining momentum, but with valuations rising across most asset classes, selectivity is essential.
- The U.S. economy is strong, but markets are expensive. Maintain a core allocation to U.S. equity, but consider rebalancing toward international and emerging market equities.
- There is still room to run in international and emerging markets. Seek meaningful exposure to Europe’s improving health and rising consumer purchasing power in emerging markets.
- It’s time to de-risk core bond portfolios. Ensure your bond portfolio is broadly diversified and does not have excessive high-yield exposure.