Weathering Heights: How to Invest in 2018
by Goldman Sachs Asset Management
Can equities continue to rise from their current heights? Investors ask us this question more than any other and our answer remains yes. Valuations are high relative to history but the macro environment is remarkably benign for financial markets and valuations should be judged in that context.
We think equity markets will be carried to new highs by a supportive macro environment in 2018. Headwinds are present though. The US economy is at risk of overheating, tighter financial conditions could slow the European recovery and Chinese growth stimulus seems likely to moderate following the 2017 Party Congress. Geopolitical risks related to North Korea or US trade relations could flare up at any time.
How can investors weather the heights in asset valuations and the potential risks in 2018? We think this environment calls for a dynamic approach to asset allocation, an equity strategy that looks beyond the major developed market benchmarks and a fixed income approach that seeks returns outside of developed market government and corporate bonds.
Six Questions for 2018
1. Can the global economic expansion continue?
2. Are equities overvalued?
3. Is 2018 the year central bank policy tightening starts to matter?
4. What gets disrupted next?
5. What market trends are we seeing through the lens of Big Data?
6. How to invest in 2018?
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