A Healthier Economic Environment

I don’t think it’s too much to say that that’s happening globally, and it’s happening globally both from a real sense and from an inflation sense, so nominal growth around the world, we ourselves at AB are increasing our forecasts for both growth and inflation as we move through time.

That’s new to us since the financial crisis. However, it’s not new in terms of the way the world works. The notion that’s new recently for the marketplace is, wow, I guess we don’t have to just rely on the central banks to add more liquidity into the system, which drives up asset prices. That’s no longer the main game in town.

So we already see by the Federal Reserve that they’re in a rate-tightening mode. Eventually they’ll get to the point where they’re gonna debate about how they shrink the balance sheet. We heard from the ECB that oh, by the way, we don’t necessarily think it’s an emergency time anymore. It’s still, you know, the patient’s not out of the hospital yet, but it’s not ER-type anymore.

That all goes hand in hand with the notion that the economy is recovering, and I think that that is perhaps the most important thing other than this notion of what’s happening in politics.

That’s not to say that we didn’t get a little bit of extra gas from what the market expected to come out of a new Trump administration, and I’ve said since he was elected that there are three things that the market loves.

The market loves deregulation. The market likes tax reform and the market likes some form of infrastructure or extra fiscal spending.

There are two other things that the market doesn’t like and the market shouldn’t like. One is an immigration policy that shuts the borders in the United States and the other one is some sort of a trade barrier that slows down global trade.

At the moment, because we’re in a cyclical upswing, the market is focusing on the first three. Eventually I think that we’ll get some economic prints that don’t look quite so well and the market will focus on the other two.

So volatility isn’t gone from the marketplace by any stretch of the imagination, but I think the world that we had gotten so used to living in, which is as we characterize it as a risk-on, risk-off world, I think that that is most likely behind us, and I think that’s healthier for everybody, our clients and, and our portfolio managers as well.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.