2017 saw a combination of solid economic growth without a significant pick-up in inflation. This let the Fed continue to raise rates, but at a measured pace, and it has flagged it’s likely to raise rates another three times this year. Other major central banks did not follow this path and bond yields remained suppressed globally.

It’s probably not the time to add stimulus to a fully employed economy, but that is exactly what US Congress has done with recent tax cuts and spending Bills. Wage gains are already broadening in the US and we’re seeing globally synchronised economic growth. The US efforts to reduce bureaucratic red tape are a key initiative, and certainly a positive for global economies and markets. 

There is a reasonable chance that US tax cuts, globally synchronised growth, and rising inflation sparks a bond scare at some point in 2018. This should be supportive of value investing and market participants should certainly expect a more volatile time in both bond and equity markets. Despite rising rates, falling credit spreads in fixed income markets and weakness in the US dollar, overall financing conditions for corporates and consumers are still quite easy in many of the globe’s economies.


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