Cyclical investment strategy

Here’s What We’re Thinking

February 21, 2018

The spike in market volatility experienced in early February started to fade over the past couple of weeks and major stock indices have retraced 50% or more of their recent pullback. Given market volatility consistently remained at very low levels for an unusually long stretch (18 months) until late-January, we believe market positioning became unbalanced over the past year-and-a-half, leading to the sudden 10% correction a few weeks ago. However, we see this weakness as transient, set against a strong medium-term outlook for market fundamentals. In particular, economic growth momentum remains solid with economic data continuing to beat economists’ forecasts, leading to growth forecast upgrades for this year and next.

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