Three more rate hikes in 2017. Two in 2018. The Fed overnight rate will move to 2.00 - 2.25% by mid 2018. The yield curve (difference between 2 and 10 years US Treasury yields) will invert and we should have a recession by late 2018 or 2019. The bull rally for the US which began in 2009 Feb, will officially end in 2018. A bear market, defined as a correction of over 20%, will occur finally.
While many investors marvel at the over valuation of US equities and the length of the bull rally which began in 2009 Feb, it is actually quite similar to the bull rally of 1994 - 2000.
Why is this so? If you look at the charts of various indices since 10 years ago, stock markets have not been strongly correlated at all. NASDAQ, which floundered from 2000, finally made a come back from 2009. It is by far the best performing with 8.2% return per year.
S&P500 is second with 4% per year.
However, the recovery has been uneven. Europe, Stoxx 600, has been the worst performer with -2.8% per year. It's CAPE ratio is among the lowest in the world, in particular Italy, Spain, Turkey. The recovery was punctuated by major corrections in 2011 during the European Crisis and the Big Correction of 2015.
Asia x Japan and Emerging Markets hardly fared better. EM dropped by -00.8% per year. Asia x Japan up by 1.3% per year. Valuations for Europe, Asia x Japan and EM are a lot more reasonable vs the US.
There is probably more legs yet for the rally, until perhaps 2018. It may surprise many. I am not one to time the markets. I am at around 25% equities, 75% bonds. But I will move towards 35% equities soon. Within equities, I will focus on EM, Asia x Japan and European funds. Within bond funds I will focus primarily on EM.
The trend is your friend, until the end....
While many investors marvel at the over valuation of US equities and the length of the bull rally which began in 2009 Feb, it is actually quite similar to the bull rally of 1994 - 2000.
Why is this so? If you look at the charts of various indices since 10 years ago, stock markets have not been strongly correlated at all. NASDAQ, which floundered from 2000, finally made a come back from 2009. It is by far the best performing with 8.2% return per year.
S&P500 is second with 4% per year.
However, the recovery has been uneven. Europe, Stoxx 600, has been the worst performer with -2.8% per year. It's CAPE ratio is among the lowest in the world, in particular Italy, Spain, Turkey. The recovery was punctuated by major corrections in 2011 during the European Crisis and the Big Correction of 2015.
Asia x Japan and Emerging Markets hardly fared better. EM dropped by -00.8% per year. Asia x Japan up by 1.3% per year. Valuations for Europe, Asia x Japan and EM are a lot more reasonable vs the US.
There is probably more legs yet for the rally, until perhaps 2018. It may surprise many. I am not one to time the markets. I am at around 25% equities, 75% bonds. But I will move towards 35% equities soon. Within equities, I will focus on EM, Asia x Japan and European funds. Within bond funds I will focus primarily on EM.
The trend is your friend, until the end....
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