Investment Outlook Q2 2018: Global equities

  • 05 Jun 2018

    Equity markets are returning to more normal levels of volatility -- though ‘normal’ has shocked investors after an exceptionally long period of calm. We think that we are entering the end of the cycle, but this stage could be drawn out, given healthy fundamentals.

     
    • The positives: Developed market growth is cooling a little, although its recent trend has been robust and supportive, while emerging markets continue to grow strongly. Concerns about rising inflationary pressure have eased since the beginning of the year, when stronger than expected US wage growth jolted markets.
    • Near the top of the cycle: Central banks are shifting towards tighter monetary policy, and we believe even small interventions can have a significant impact. Similarly, unexpected shifts in macroeconomic data could impact markets because of the dependence on momentum - this is typical late-cycle behaviour.
    • FAANG performance: Facebook, Apple, Amazon, Netflix and Alphabet (Google) - or FAANG - remain highly valued and led into, and out of, the recent market corrections. The reliance on FAANG could pose risks if sentiment shifts quickly.
    • Europe more stable, Japan more volatile: European markets have a broader base of support than FAANG-dominated US, which makes us more positive on the region. Japan could prove volatile given its high exposure to global trends. In China, we expect the economy to slow gradually but this has largely been priced into markets, given the Chinese government has historically been able to manage its economy carefully.
    • Negative on consumer discretionary: We are concerned about auto stocks, where profits are peaking and finances are deteriorating, and retailers face more restrained consumer spending. In energy, prices should be range-bound and we do not expect undersupply or oil price shocks.

     

    Though the ‘Goldilocks’ economic scenario of above-trend growth and below-trend inflation remains intact, it’s important that you are selective about where and how you invest.

    Fidelity’s quarterly Investment Outlook provides a representative summary of the views of our investment teams across asset classes. Find more insights from our experts here.