Two weeks into 2017 and investors should have a smile on their faces. Global growth is proving stronger and more resilient than many had suspected and most asset classes are already generating positive returns.
To the surprise of many the global economy has carried more momentum and on a broader front. Both Asia and Europe have made their contribution to stellar growth that has had analysts increasing their corporate profit forecasts. Equities have taken heart and given good solid returns. However we also note that equity investors are demanding a bit more proof that Donald Trump will deliver on his tax cuts and spending plans. Hence equity markets are starting to hesitate after such strong performance since the US Presidential elections. US financials are up 30% and the Russell 2000 index of smaller companies up 25%.
The performance of bond markets has proved more resilient than many had feared. The US 10 year bond yield that looked destined to rise to 3.0% has settled back well below 2.5%. High yield bonds have continued to give good returns with US high yield delivering a 1.2% total return year to date. We still believe bonds are the better asset class over the next 5-10 years but investors should be patient and wait for buying opportunities on sell offs.