Equity Outlook  |  Q4 2016

Keeping fundamentals in focus as markets shift

Equity Market insights

Key takeaways

  • We are maintaining underweight exposure to defensive areas of the U.S. market that we believe are still overvalued.
  • Eurozone cohesion may continue to be challenged into 2017 as populist political movements pull against EU centralization of power.
  • We remain cautious with respect to the recent rally in emerging-market stocks.
  • For U.S. businesses, we believe modest but constructive earnings growth could emerge in the months ahead.

Investors witnessed a calm three-month advance for U.S. equities in stark contrast to last year’s historically turbulent third quarter in which stocks took a beating amid plunging commodity prices and China’s currency devaluation. This year, the quarter brought new record highs for major U.S. equity indexes along with more muted macroeconomic worries — a surprise for many investors who expected difficult post-Brexit conditions. Non-U.S. markets also rose with the rising tide of accommodative macro policy. Negative rates, it turns out, have a dubiously positive capability: giving a strong bid to risky asset types.

Defensive rally takes a breather chart

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