Investor Discussions - Current Outlook

Wealth & Pension Services Group
William Kring, CFP, AIF - Chief Investment Officer
Matt B. Bailey, CFA, CMT - Senior Portfolio Manager
05/19/16

Bulls vs. Bears: Who Will Prevail?

Historically, global equities have generally moved in unison as they did during the bull market from 2002-07 and subsequent bear market of 2008/09. However, we currently find the S&P 500 near all-time highs while international developed and emerging market (EM) stocks are at multi-year lows. Additionally, interest rates are near historic lows and don’t appear to moving higher anytime soon. This type of bifurcated market leads to uneasiness and makes it hard to feel good about investing.

Nevertheless, a global recession might be a few years away and central banks remain accommodative. This suggests that risk assets may continue to perform well in the near term. Although we don’t expect a lot from the S&P 500 going forward, we do see potential in the other areas. The key to success will be selecting the right risk assets and pairing them with high quality bonds and other hedges such as gold. Lastly, it’s worth noting that our current base case scenario may change as the data flow and central bank policies are updated.

Current Outlook

Base Case

• Fed remains accommodative (dovish); U.S. doesn’t enter recession but muddles along instead
• Global stocks move higher led by EM and Value; S&P 500 retests highs potentially makes new ones
• Earnings stabilize due to commodities
• U.S. dollar (USD) moves a little higher before continuing its recent path lower
• Rates remain low globally

Bull Case

• Fed becomes more dovish; U.S. economic growth picks up
• Global equities move higher led by EM and Value; S&P 500 and other global markets continue making new highs
• Earnings and top line sales increase and support equities
• USD moves a little higher before continuing its recent path lower
• Rates start to slowly push higher as inflation shows up in data

Bear Case

• Fed tightens one or more times during 2016; U.S. growth stumbles and recessionary fears return
• S&P 500 fails to make new highs; commodities stumble and drag down EM
• Earnings and sales figures continue lower
• USD moves higher and puts pressure on earnings, commodities and EM
• Rates push lower and deflationary fears return

As always, please feel free to contact us with any questions you may have.