INSIGHTS

On July 25, 2018

Instability to Give Way to Renewed Confidence?

Through the end of June, markets have posted lackluster returns, with the S&P gaining 2.6% YTD (year to date) and the ACWI ex-US declining (-3.8%). The dollar appreciated during the first half, so results for the ACWI ex-US in local currencies were better than the loss posted in dollars. We think the market is wrestling with a number of cross currents that probably leave it posting lackluster returns until we get some clarity of how the current challenges facing it will be addressed. Those challenges include:

• Trade Tariff worries


• Central Banks tightening


• Softer H1 (1^st half of the year) economic growth


• Geopolitics (Iran, North Korea)

Against these concerns, we believe there are opportunities forming as markets have not kept pace with the improvement in underlying fundamentals.

• We believe the disbelief investors are showing in the sustainability of U.S. growth will give way to renewed confidence in growth as the year goes on.


• Concerns that have emerged as the United States acts like "A Bull in a China Shop" with tariffs will probably fade, in our opinion, as the approach leads to some negotiated settlements.


• Economic and earnings growth remains firm worldwide.


• The United States should have stimulative policies coming. China is pursuing stimulus as well.

As markets become more comfortable that economic growth is sustainable, they are likely to start acting better later on this year. The case for international investing remains strong, in our opinion, and we think investors should consider increasing their allocations to those markets.

CRN: 2018-0725-6784 R