Heading into the second half of 2017, we believe the elongated U.S. credit and business cycle – currently eight years old and counting – will continue through the end of the year. Yet for the first time in almost a decade, the risks to the global economy are centered in the U.S. and not in other major world economies.
Growth in much of the rest of the world is stable or accelerating. In Europe, a much-anticipated credit and earnings cycle is underway, while most emerging markets are recovering from their 2015-2016 slowdowns and recessions. In our view, the biggest threat to the global economy is the prospect of the U.S. Federal Reserve (Fed) further tightening U.S. monetary policy.
Against this backdrop, we believe:
- Equities remain the asset class of choice. International equities are more attractively valued than, and likely to outperform, U.S. stocks.
- Within the U.S., we favor growth companies in an environment where macro growth will continue to be scarce.
- Long-term Treasury rates will remain low for the foreseeable future and send a message to the Fed to proceed with caution.
- Emerging market sovereign and corporate bonds offer the most attractive value in fixed income for global bond investors seeking potential total returns.
Market cycles ultimately end with tighter monetary policy and the yield curve inverting. We believe this time will be no different.
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Equities are subject to market risk and volatility; they may gain or lose value. Fixed-income investing entails credit and interest rate risks. Bonds are exposed to credit and interest rate risk. When interest rates rise, bond prices generally fall, and a fund's share prices can fall. Investments in securities of growth companies may be especially volatile. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing markets may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues. Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value. These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.