Our current view is that a small correction in the equity markets is underway. We believe this is a cyclical adjustment within a broader uptrend and the concerns over another slump in growth are overblown. For the next few months, we could be in a rolling correction.
Robust corporate earnings, rising mergers and acquisitions activity, solid global growth, and more corporate share buybacks and dividend increases should support equities. Additionally, while the Federal Reserve and other central banks are likely to raise rates as the global expansion progresses, real interest rates are not expected to return to normal levels any time soon.
The bull market in commodities is taking a breather as it has several times over the past decade. The fundamental forces behind it remain intact, including strong global growth trends in emerging markets and lower-than-normal real interest rates across the globe.
With regard to sectors, we are maintaining our positions in energy, industrials, materials and information technology. We are growing more favorable on financials as we have been patiently awaiting a recovery and thus have a painful relationship with this sector.
For additional information contact Richard Taylor.