2016 Outlook: Modest Growth with High Volatility Ahead
We are now entering a new phase of the business cycle, one that may bring more modest returns and greater volatility. We see none of the signs that indicate we’re at the end of a cycle, namely robust credit growth, mounting global inflation, and excessive equity valuations. Nevertheless, the end to the extraordinary central bank stimulus efforts marks an important turning point.
The U.S. economy enters 2016 growing below trend, as a result of the stronger U.S. dollar and an overall tightening of credit conditions. In this environment, no single country can decouple from the world economy because currency has become the great equalizer. Any country that grows faster than the rest of the world will see its currency strengthen and its economy slow as a result.
Recent action by the Fed and any further tightening policy during a period of weak global growth is likely to have consequences. If that occurs, we expect market volatility to emerge and intensify over shorter time frames.
Options for the short term
- We remain cautious in the short term, as the U.S. market seems to expect further weakness.
- We believe in holding some cash to take advantages of opportunities that may emerge.
- Equity valuations in Europe appear more attractive than those in the United States
- Emerging market stock valuations are also attractive, but many EM equities may be impacted by tighter U.S. policy conditions
Options for the long term
- Long-term, we expect modest growth, accommodative central bank policies and low interest rates—all of which favor equities over bonds and credit over Treasuries.
- The long-term bull markets in equities and credit are unlikely to end soon.
- When growth and income are scarce, investors are likely to pay up for it.
View the full OppenheimerFunds 2016 Outlook with commentary from George Evans, CIO Equities, and Mark Hamilton, CIO Asset Allocation, here.
DISCLOSURE:
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.
Senior Financial, Risk and Regulatory Program/IT Manager
8 年In biology nature unlimited growth equals cancer, population imbalances, and "freaks of nature".
director at excel granite and marble
8 年correct sriram, the plan is not unravelling, it is the beginning.
Accelerating #cloud, #digital & #AI transformation for enterprises.
8 年To echo Prof. Kahneman, one thing we have lost (that we had in the past) is a sense of progress – that things are getting better. Now, there is a sense of volatility, but not of progress. The new world order, I guess.