With our collection of indicators generally looking positive, we expect the current business cycle to last at least another year and probably longer. Volatility can be healthy in this type of market environment. Given our sanguine outlook, we think that volatility gives investors the opportunity to invest in high quality assets at a discount to where they were priced just weeks ago.
In summary, while we expect the pace of economic growth to slow, there are few signs of recession risk over the near-term. Even slow economic growth allows for higher corporate revenues and earnings which can support higher stock prices. Furthermore, equity markets tend to peak roughly six months prior to the end of the business cycle. As a result, we expect global equities to make new highs in the coming months.
THE CASH INDICATOR
The Cash Indicator (CI) has bounced off very low levels recently but is still below its historical average and well below any level that would make us concerned. Consistent with our fundamental analysis, the CI suggests that there is plenty of liquidity in the global markets and volatility is tame.
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Past performance and yield may not be a reliable guide to future performance. Current performance may be higher or lower than the performance quoted.
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Bloomberg Barclays U.S. Corporate High Yield Index – This Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Bloomberg Barclays U.S. Corporate Index – This Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.