Third Quarter 2017 – “Not Too Hot – Not Too Cold”
The third quarter was marked by evocative political headlines and a series of highly destructive and tragic hurricanes hitting the Gulf Coast, Florida, and Puerto Rico. However, these all did little to dampen investors’ enthusiasm for risk taking. Global equity markets ended the period on a high note with the S&P 500, the MSCI EAFE, and the MSCI Emerging indices gaining 4.5%, 5.4%, and 7.9%, respectively. Markets reacted positively to earnings momentum, and economic indicators which showed the global economy shifting into a “Goldilocks” state with economic growth that was neither “too hot” nor “too cold.” The IMF recently upgraded its outlook for global growth to 3.6% for this year and next, and in its report noted that the upturn in growth was much broader based than it’s been at any point during the last decade. Accelerating global growth raises the inevitable question: At what point do central banks begin raising interest rates and scaling back their extraordinary quantitative easing programs? While the US Federal Reserve started to raise interest rates at the end of 2015, it’s progressed at a glacial pace. So far, low inflation rates have given policymakers at the European Central Bank and the Bank of Japan a reason to hold back on winding down their easing programs. However, at least in Europe, there’s been more discussion around the path they’ll follow and urgency to telegraph a starting point. While the picture is murky, we’d expect the Fed’s program to serve as a template for its peer institutions as they seek to normalize their market activities.