INSIGHTS
Further Gains Ahead: Outlook on markets and the global economy
Chief Investment Strategist Myles Zyblock offers his views on the current macroeconomic picture, including prospects for global GDP growth, global disinflation, and the likelihood of monetary easing by central banks around the world. Zyblock also offers his assessment of global equity markets, the outlook for corporate earnings and risks and opportunities in fixed income markets. He remains a strong advocate for the use of alternatives to enhance portfolio diversification.
Inflation is Moderating
America’s progress on the inflation front has been a bit slower than the global average due to ongoing wage pressures. Now, I do think from here that disinflation is more likely than a big re-acceleration in inflation. This is at least, in part, because labour demand is softening due to the lagged impact of monetary tightening, so that should remove some of the wage pressures being felt throughout the economy.
Developed market inflation has moderated from 7.9% to 2.9% over the past 18 months.
The earnings outlook
On the whole, equities are appreciating this year, with Japan leading the way. Now, will global corporate earnings continue to climb? I think the answer is yes. Wall Street analysts believe that earnings will continue grind higher, which seems to be a reasonable assessment given the state of the global economy. Part of what's driving earnings expectations and the global equity market is the upgraded forecasts for GDP growth particularly for Europe, the U.S., and China.
Global corporate earnings have started strong in 2024, with Japan leading the way.
The U.S. as a growth market
I think the U.S. market is sort of the poster child for a growth style of investing. U.S. earnings have been much stronger than earnings in the rest of the world. It's not that much of a stretch to say, if you're a growth-biased investor, there's a lot of opportunity there -- I'm not saying there isn't opportunities in other parts of the world, but the U.S. is displaying market-leading earnings growth.
Higher profitability in the U.S. has contributed to a much stronger EPS growth rate over time.
Finding value in Europe
European stocks are among the cheapest group of stocks in the developed world. Equity valuations look somewhat stretched globally, but Europe looks cheap. It's the cheapest developed market there is - particularly the Eurozone and the U.K. Europe is trading at cheaper valuations than the U.S. value universe, which to me, is shocking … about a 10% discount. So there you have it, Europe for value.
European stocks are among the cheapest group of stocks in the developed world.
An Improving Bond Market
The bond market outlook appears to be improving at the margin. Inflation risks are moderating, central banks are lowering interest rates, and there doesn’t seem to be a big risk that high-quality corporate bonds blow up. Credit fundamentals look pretty healthy given ongoing corporate earnings growth, low corporate debt growth, and negative net interest payment growth -- even while short-term interest rates have remained somewhat elevated.
DISCLAIMER
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments, including ETFs. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds and ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
Dynamic Funds® and Legitimately Active Management® are registered trademarks of The Bank of Nova Scotia, used under license by, and is a division of, 1832 Asset Management L.P.