Q2 2017 |Market Perspectives

Go beyond the headlines to help investors understand the latest market and economic data with insights from Putnam.

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Economic strength appears sustainable

  • A consistently solid U.S. economy helped propel the post-election equity rally through most of the first quarter of 2017. The economic outlook suggests continuing global improvement.
  • The dollar has cooled but still has room to run; currency trends tend to persist. U.S. earnings growth remains above average and is projected to improve. Economic indicators are consistent with 3% GDP growth.
  • Expectations for Trump fiscal policy are elevated. If policy disappoints, investor sentiment could turn negative. If results are too successful, there could be unintended consequences.

Value-style stocks typically outperform when the economy accelerates

  • U.S. stock valuations are close to longer-term historical averages, neither cheap nor excessively expensive.
  • The most expensive quintile of stocks — led by large-cap growth stocks — now carries an average valuation more than twice as high as the remaining 80% of the market.
  • Value outperformed in 2016, and faster GDP growth historically benefits cyclical value sectors such as financials and energy.
  • Small-cap outperformance may be driven by stronger earnings and benefit from fiscal stimulus.

The Fed is tightening rates at a slow but steady pace

  • With three rate hikes expected over 2017, the Fed views the outlook as uncertain and will be data dependent, adjusting its stance as visibility improves.
  • If history is any guide, this cycle of higher interest rates has further to go.
  • Rising rate cycles are historically positive for equities.
  • Diversifying with non-traditional fixed-income investments can help mitigate interest-rate risk.
Q2 2017 |Market Perspectives

Go beyond the headlines to help investors understand the latest market and economic data with insights from Putnam.

DOWNLOAD THE FULL DECK (PDF)