Is economic growth still on the horizon?

Key takeaways:

  • Some investors are concerned that  the duration of the current bull market means we must be overdue for a bear market, but CIO Americas, Wealth Management (CIO) believes there are few signs to suggest the market has run out of room to run.
  • Stocks should continue to outperform bonds due to solid economic growth, a robust earnings cycle and an accommodative policy mix. Within U.S. equities, CIO is overweight large-cap value relative to large-cap growth. 
  • CIO is reducing its overweight in global equities, with global price-to-earnings ratios at 17.8x and close to the long-term average of 18x.  In fixed income, it lowers the underweight to U.S. government bonds. And in currencies, CIO is neutral on the U.S. dollar and trims its preference for the Canadian dollar over the Australian dollar.
  • With cyber-security back in the spotlight, CIO expects companies and governments to continue to step-up cyber-security spending as the costs of attacks become more expensive, both from a financial and a reputation basis.  
  • Talk to your UBS Financial Advisor about how you can best position your portfolio to take advantage of the current market cycle and shifts in the investment landscape.  

The duration of the current bull market in global stocks makes investors around the world ask, “Are we overdue for a bear market?” But bull markets don’t just die of old age. To answer “yes” to this question, you would have to conclude that valuations are far too high, or that we are likely heading into economic recession. Today, CIO Americas, Wealth Management (CIO) doesn’t believe either is a clear and present danger to the bull.

While we are now more than eight years into the current economic expansion, there are few signs to suggest the economy has run out of slack. The traditional catalysts for a recession – oil price spikes, government austerity, sharply higher rates, a credit crunch or an exogenous shock – look unlikely to emerge over the six-month investment horizon. As such, CIO believes it is too early to call the end of the cycle and become overly defensive.

CIO offers investment strategies and specific asset allocation guidance to help investors prepare for the later stages of the current bull market in its new UBS House View publication entitled: “Mapping the cycle.” (PDF, 2 MB) As we look further forward, a downturn will inevitably come at some point, most likely from a withdrawal of monetary support.  In preparing to respond, investors will need to allow for greater flexibility in investment policies and make certain they are diversified across equities, bonds and alternatives.

And, in continuing to offer investors forward looking global guidance, this edition of UBS House View focuses on cyber-security, which is back in the spotlight after a new series of high-profile cyber-crimes around the world. Cyber-security will continue to be a topic of importance as cyber-hackers become more sophisticated and the cost of attacks become more expensive. Two of our long-term investment themes – transformation technology and security and safety – have exposure to the cyber-security industry and offer potential investment opportunities.

For more on CIO’s investment outlook and portfolio recommendations, read Mapping the cycle (PDF, 2 MB).

 

Is your portfolio prepared for the later stages of a bull market? Together we can find an answer. Connect with your UBS Financial Advisor or find one.

Join our UBS House View Monthly call

Next call: Thursday, October 5, 2017

Join us for our next UBS House View monthly call and get the latest on our market views and investment strategy guidance. * Mark your calendar as the UBS House View call takes place the first Thursday of every month at 1:00 p.m., ET/10:00 a.m., PT.

Call details:

U.S. toll-free dial in: 1-877-200-4456

International (toll) dial in: 785-424-1743
Participant code: 46502#

Listen to the replay from our October 5, 2017 call:

U.S. toll-free dial in: 866-415-9424
International (toll) dial in: 205-476-0997
 Replay code: 46502#

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