A January report from nonprofit investment firm Commonfund argues that the U.S. economy remains in a “sweet spot” for continued gradual growth with minimal concerns about inflation. The 2015 Commonfund Outlook projects that equity markets will outperform in this macroeconomic environment, and doesn’t expect any action from the Fed until later in the year when the economy is showing more clear signs of growth.
The Commonfund analysts point out that sub-$50 oil prices will generally provide a tailwind for the U.S. and global economies, but also highlight the probability of increasing volatility in both the commodities and financial markets.
US Goldilocks economy in the middle of a secular bull market
The introduction to the 2015 Commonfund Outlook notes: “…we believe that conditions are in place for the U.S. equity market to outperform on an extended basis and should be looked at in the context of a 5- to 10-year secular bull market run rather than a 3-year cycle.”
The following is our rough coverage of the 2021 Sohn Investment Conference, which is being held virtually and features Brad Gerstner, Bill Gurley, Octahedron's Ram Parameswaran, Glenernie's Andrew Nunneley, and Lux's Josh Wolfe. Q1 2021 hedge fund letters, conferences and more Keep checking back as we will be updating this post as the conference goes Read More
US equity markets are the place to be
Given the US Goldilocks economy, it’s obvious U.S. equity markets are the place to be.
Breaking it down further, the report highlights that “Europe will continue to face low growth and low inflation at best.” For Japan, factors such as election reconfirmation of Abe’s mandate, strong tailwinds from low energy prices, ongoing equity purchases by public pension funds and strong corporate earnings are positives, but longer term demographic and structural issues are major concerns. Looking at China, you’ve got to worry about both the deflating of the credit and housing bubbles and weak global demand.
The Commonfund analysts do point to India as “a potential winner in this new world due to lower raw material input costs”, but at the same time note that “emerging markets broadly are likely to face challenges from a stronger dollar and future U.S. Fed monetary policy rate hikes.”
Warning on volatility
The report argues that although the odds of a major domestic stock market correction remain low, they do expect wider market swings similar to those seen in late 1997 and 1998. “We look for the road to higher stock prices to have several large potholes. Investors could consider purchasing protection, particularly if it is inexpensively priced, as market volatility is likely to be higher in the upcoming year.”