Finnish manager Evli has said in its latest allocation view that it is still overweight equities – alongside an overweight to high yield and underweight government bonds in the fixed income space.
The positioning comes amid expectations that corporate earnings are likely to remain strong through 2018, particularly following the latest earnings season in the US. Tax cuts are likely to further increase earnings opportunities there, Evli suggests. In Europe there are headwinds in the form of stronger currencies, but average global earnings growth is “expected to reach double-digit figures in 2018”.
Also on growth, global GDP is expected to come in at around 4% in 2018, which is clearly higher than the historical average, but points to how economies are more likely to experience stable growth rather than another year of strongest growth since the global financial crisis a decade ago.
That strong growth has been noted by the likes of recently installed US Federal Reserve chairman Jerome Powell, who stated on 27 February that the unemployment rate in the US was at its lowest since December 2000 – the rate for those with college degrees is now down to just 2%, he suggested.
Responding to the data recently, markets pushed the 10-year US Treasury yield to a four year high. Evli notes that the two-year US government bond yield is at a decade high. The manager believes that yields could go higher through 2018, especially for European government bonds.
Also looking ahead, Evli suggests that while market volatility has abated since hitting peaks in early February, it has reminded investors that volatility could be a theme through the year.