Skip to main content
PGIM Quantitative Solutions LogoPGIM Quantitative Solutions Logo
  • About Us
    • Our Philosophy
    • Our History
    • The Team
    • Diversity, Equity & Inclusion
    • Contact Us
  • All Insights
    • ESG
    • Market Views
  • ESG Overview
    • ESG Insights
    • ESG Policy
    • Stewardship and Governance
  • Overview of Solutions
    • Quantitative Equity
    • Multi Asset
    • PGIM Wadhwani
    • PGIM DC Solutions
  • Client Log In
  • Careers
QMA Global Multi-Asset
Video

2018 Outlook & Review2018Outlook&Review

With Edward L. Campbell — Nov 24, 2017

View Transcript

Read the transcript

  • –

    Hi, I'm Ed Campbell and this is the 2018 Economic and Market Outlook. 

    The global economy experienced synchronized growth acceleration in 2017. 

    It has been broad-based with advanced economies all benefitting and most emerging economies gaining momentum. 

    Prior to 2017, world economic growth had consistently slowed in the post-crisis expansion, but 2017 was the year where economic growth improved and broke the deceleration trend, and growth may shift up again another year in 2018. 

    2017 was also a stellar year for global stock markets with the S&P 500 up more than 20%. 

    What was perhaps most remarkable is that these returns were delivered in a year where market volatility reached unusually low levels. 

    This chart shows the 12-month rolling standard deviation based on daily data was the lowest on record since the 1960s. 

    Therefore, risk-adjusted returns were even more impressive than total returns. 
    Indeed, the 12-month rolling return risk ratio, or sharp ratio, based on daily data over the past 30 years was in the 97th percentile and during 2017 reached the highest levels we've seen since the tech boom of the mid to late 1990s. 

    It seems likely that equity returns will be lower, volatility higher, and drawdowns bigger in 2018, but that is not an especially bold statement. 

    Nevertheless, 2018 is likely to be another rewarding year for equities, in our view. 

    Earnings growth is likely to be strong again over the next 12 months, even before one factors in the one-time windfall from corporate tax cuts, and while equity markets are trading at above average valuations, multiples don't typically contract during the late cycle expansion. 

    With the U.S. economic expansion still on firm footing and the global economy in the best shape since the financial crisis, global monetary policy should continue toward normalization. 

    With the Fed hiking rates and shrinking its balance sheet and the ECB continuing to taper bond purchases, monetary conditions should remain, on balance, very accommodative but less so on the margin. 

    We expect the Fed to deliver three rate hikes this year consistent with the dots and believe market expectations will have to shift upward to meet the dots. 

    The recently signed Tax Cut and Jobs Act creates upside risks for growth, inflation, and interest rates in 2018. 

    Therefore, we think fixed income returns are likely to be slim to non-existent. 

    Within equities, we would focus on sectors rather than region styles or market cap segments. 

    Late-cycle optimism should boost cyclical sectors over defensive ones. 

    We are underweighting defensive sectors that sport high relative valuation such as utilities and consumer staples. 

    Financials and technology are our favorite sectors. In an environment where it is very difficult to find attractively valued asset classes, financial stocks still fit the bill. Financials should also benefit from a lighter touch on regulation, rising interest rates, improved risk appetite, and robust capital markets. Technology sector fundamentals are superior to all other sectors, and forward PU ratios are only slightly higher than the broad market today despite 2017 strong outperformance. 

    For more details on our views, please visit our website qmallc.com for our complete 2018 outlook and review. 

    We want to wish you a happy and prosperous new year, and thank you for watching. 
     

  • By Edward L. CampbellCo-Head of Multi Asset, PGIM Quantitative Solutions
  • About Us

    • Overview
    • Our Philosophy
    • Our History
    • The Team
    • Inclusion & Diversity
    • Contact Us
    • Careers
  • Insights

    • Overview
    • ESG
    • Market Views
  • ESG

    • Overview
    • Insights
    • ESG Policy
    • Stewardship and Governance
  • Solutions

    • Overview
    • Quantitative Equity
    • Multi Asset
    • PGIM Wadhwani
    • PGIM DC Solutions
PGIM Quantitative Solutions Logo
  • Terms & Conditions
  • Privacy Center
  • Accessibility Help
  • Cookie Preference Center

For Professional Investors only. All investments involve risk, including the possible loss of capital.

The content and materials presented here are for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM Quantitative Solutions LLC (PGIM Quantitative Solutions or PGIM Quant), formerly known as QMA LLC, is an SEC-registered investment adviser and a wholly-owned subsidiary of PGIM, Inc. (PGIM), the principal asset management business of Prudential Financial, Inc. (PFI) of the United States of America. Registration with the SEC does not imply a certain level of skill or training. PFI of the United States is not affiliated in any manner with Prudential plc incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. 

In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V. with registered office: Gustav Mahlerlaan 1212, 1081 LA Amsterdam, The Netherlands. PGIM Netherlands B.V. is authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands (Registration number 15003620) and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. 

These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II). PGIM Quantitative Solutions, PGIM Limited and/or PGIM Netherlands B.V. are indirect, wholly-owned subsidiaries of PGIM. These materials are not intended for distribution to, or use by, any person in any jurisdiction where such distribution would be contrary to local or international law or regulation.

In Japan, investment management services are made available by PGIM Japan, Co. Ltd., ("PGIM Japan"), a registered Financial Instruments Business Operator with the Financial Services Agency of Japan. In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 (paragraph (a) to (i) of the Securities and Futures Ordinance (Cap.571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a Singapore investment manager that is licensed as a capital markets service license holder by the Monetary Authority of Singapore and an exempt financial adviser. These materials are issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Sections 305 of the SFA. In South Korea, information is issued by PGIM Quantitative Solutions, which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.

PGIM, PGIM Quantitative Solutions logo and the Rock design are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

© 2022 PGIM Quantitative Solutions. All Rights Reserved.
 

You are viewing this page in preview mode.

Edit Page