High valuations across most global asset classes and a range of economic and policy risks, including the threat of trade protectionism, could see volatility persist moving into the second half of 2018, according to T. Rowe Price’s Mid-Year 2018 Market Outlook.
However, this would potentially produce attractive buying opportunities for long-term investors, the global investment manager said.
T. Rowe Price said the growth outlook is most robust in the US, where confidence remains high on the heels of last year’s tax cut legislation for individuals and corporations.
The outlook for European economies also is broadly positive except in the UK, where Brexit uncertainties continue to weigh on business confidence and business spending, the manager said.
Rob Sharps, head of investments and group chief investment officer at T. Rowe Price, said the key question going forward will be whether the global economic expansion and the bull market in risk assets have entered a late stage, a phase typically marked by inflationary pressures, rising interest rates and deteriorating profit margins.
“Some signs point in that direction, but it would be a mistake to assume that because the current expansion has been long, it must be nearing its end. The recovery has been long, but it has also been slow,” Sharps said.
“It may be that markets are in a mid-cycle pause as central banks around the world recalibrate monetary policy for a more sustainable expansion.”
Sharps said the fundamental environment is “great, but it’s not getting any better”.
“Risks are rising, and investors should consider positioning their portfolios a little more conservatively at the margin, but not overdo it,” he said.
“We’re not necessarily at the end of a bull cycle, but if you take a multi-year view, you should probably expect lower returns going forward than what we’ve experienced over the last couple of years.”
