Robeco: Global Equity - Goldilocks revisited

We are upbeat about the outlook for developed equity markets going into 2018. We think that economic growth in the major developed economic blocks will continue to accelerate, while inflationary pressures will remain largely under control for now. However, we expect the Fed to continue tightening its monetary policy in 2018, with at least three rate hikes and the start of quantitative tapering. Having said that, stocks can continue to perform reasonably well in an environment where the rate hikes are well flagged, and should not come as a major surprise to the market. We also think that the earnings environment will remain largely positive, as we expect the domestic US economy to remain relatively robust, and international economic growth to remain supportive as well.

Valuations seem more stretched in general in the US relative to international markets and, given the interest rate environment, we do not see much room for further multiple expansion. In Europe, we continue to see reasonable valuations, and we also think that the interest rate environment will remain more accommodative throughout 2018. We expect Europe to be slow to tighten, in the face of Brexit and the fragile positions of a number of countries in the periphery. We see continued recovery in those countries but very little fundamental reform to improve the structural growth outlook. However, we may also see the end of quantitative easing in Europe in the second half of the year, as signaled by the ECB.

Technical analysis and sentiment also still seem rather supportive. While the broader market may look overbought in the short term, the long-term profile is still quite healthy. We think that sentiment is already quite upbeat, but that we have not reached the extremes just yet.

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