At T.Rowe Price, we believe that while a broadening global economic recovery should continue to support markets into 2018, high asset valuations leave little cushion against unexpected market events. In this environment, bonds offer a counterweight to potential periods of equity market disruption, despite the prospect of muted returns in fixed income markets.
key points
- Broadening global growth should support corporate profits in 2018, but we remain cautious of high equity prices.
- Whilst bonds appear expensive, they remain an important diversifier for portfolios against disappointing growth or geopolitical events.
- In developed markets, government, US investment grade and high yield corporate bonds all appear expensive.
- Despite sounder economies, emerging market bonds are less compelling than previously.
- Earnings growth, however, could help drive equities.
Developed and emerging market equities could both benefit if global economic and earnings growth exceeds current expectations. US tax cuts could provide further earnings upside, while durable domestic recoveries could drive sustainable growth in Europe and Japan. Potential risks include a rise in geopolitical or trade tensions or a central bank policy misstep as interest rates and inflation both appear poised to rise. Read the T.Rowe Price 2018 Global Market Outlook
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