Global Equities to Trend Higher

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Although a short-term correction is likely, the current reflationary window should provide a tailwind for global equities in 2017.

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We expect global equities to be higher in 12 months than they are today. However, the risks for stocks are tilted to the downside over both a shorter term horizon of lesser than two months and a longer-term horizon exceeding two years.

The near-term outlook is complicated by the fact that global equities are overbought, and hence vulnerable to a selloff. Our bullish sentiment indicator is stretched to the upside. Expectations of long-term US earnings growth have also jumped to over 12%, something that strikes us as rather fanciful. Renewed rumblings in China could also spook the markets for a while.

We expect global equities to correct 5-10% from current levels, setting the stage for a more durable recovery. Once that recovery begins, higher-beta developed markets such as Japan and Europe should outperform the US.

Read more at BCA Research

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