- After very strong gains in sharemarkets (and other growth assets) from the lows in March last year, the experience after past bear markets suggests rougher and more constrained gains ahead.
- This reflects a transition in the investment cycle. We have moved from the 'sweet spot' to a somewhat tougher environment where shares are more dependent on earnings growth, but momentum in leading growth indicators peaks, and cost pressures and interest rates start to rise.
- But while this may cause gyrations and more constrained gains, the broad trend in shares and other growth assets is likely to remain up. We are still early in a typical bull market, earnings growth is likely to be strong and global interest rates are likely to remain low.
More good news on the economic recovery
Recent weeks have seen more good news on the global recovery. Surveys of manufacturers continue to recover, the OECD's leading indicators of global growth are still rising strongly and exports are rising strongly in most countries (for example, Chinese exports up 17.7% over the last year). In addition, the US labour market looks closer to jobs growth and this, along with improving US retail sales, suggests a better outlook for the all important US consumer. Sharemarkets have reflected this good news by breaking out to new recovery highs. However, the obvious sting in the tail is that central banks and governments will sooner or later start to unwind the monetary and fiscal stimulus, creating speed bumps and uncertainty for growth assets.
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