The heads of our investment platforms identified the key themes they anticipate will guide investment decisions in 2018. This is part of our Solving for 2018 outlook, which can be accessed here.

Macro: Global inflection point nears

1 “Goldilocks” gives way to something more complicated
Though the strength of global economic momentum is undeniable, a confluence of factors—including tightening central bank policy, plateauing economic growth and rising market volatility—suggests that conditions are unlikely to remain “just right” for all of 2018.
   
2 Both monetary and fiscal policy are in motion globally
As major central banks wind down unprecedented levels of monetary stimulus, their efforts are being met—and potentially complicated—by expansionary fiscal policy and reform initiatives taking root in a number of countries.
   

Risks: Clouds gather as the year progresses

3 Geopolitical climate remains unsettled
Though 2017 mostly failed to deliver the electoral fireworks of 2016, elections this year in Italy, Mexico, Brazil and the U.S.—in addition to ongoing disrupters like North Korea, special investigations, Brexit, etc.—could upset the current order.
   
4 China accelerates structural reforms
An emboldened Xi will be more aggressive in reducing leverage and re-orienting China’s economy toward more sustainable, high-quality development, to the potential detriment of near-term growth.
   

Fixed Income: The chase continues

5 No end to the search for yield
Biased higher but still low, long-term interest rates continue to send investors into less-familiar corners of the fixed income markets in the hunt for yield, with high valuations leaving little cushion to absorb a volatility shock.
   
6 Credit drivers begin to change
Continued low default rates suggest global credit spreads likely will be impacted less by fundamentals and more by technical developments such as hedging costs, LDI-related flows and regulatory changes.
   

Equities: Two-way markets return

7 Market momentum could present opportunities to reduce beta exposure
Strong earnings growth could fuel equities in early 2018, providing investors with chances to trim holdings in high-valuation stocks and redeploy into more attractive risk-adjusted exposures.
   
8 Active management positioned to shine
Market dynamics continue to shift in favor of active management, which could extend the comeback mounted by stock pickers last year after a period of underperformance.
   

Alternatives: Finding opportunities amid high valuations

9 Low-vol strategies for a more volatile world
Market-neutral and relative-value hedge funds may help investors earn returns with lower volatility.
   
10 Sharpen quality focus in private assets
Given high private equity valuations, investors can help mitigate risk by targeting experienced private equity sponsors with a history of adding operational value or by moving up the capital structure to first-lien private debt.

In Case You Missed It

  • China Purchasing Managers Index:  +0.7 to 51.5 in December
  • Eurozone Purchasing Managers Index:  Unchanged at 60.6 in December
  • ISM Manufacturing Index:  +1.5 to 59.7 in December
  • FOMC Minutes:  The FOMC made no changes to its policy stance
  • Japan Purchasing Managers Index:  -0.2 to 54 in December
  • U.S. Employment Report:  Nonfarm payrolls increased by 148,000 and the unemployment rate remained at 4.1% in December
  • ISM Non-Manufacturing Index:  -1.5 to 55.9 in December
  • U.S. Durable Goods Orders:  +1.3% in November (excluding transportation, durable goods orders decreased 0.7%)
  • Eurozone Consumer Price Index:  -1.4% in December year-over-year (core CPI increased 0.9% year-over-year).

What to Watch For

  • Tuesday, 1/9:
    • China Consumer Price Index
    • China Producer Price Index
  • Thursday, 1/11:
    • U.S. Producer Price Index
  • Friday, 1/12:
    • U.S. Consumer Price Index
    • U.S. Retail Sales

– Andrew White, Investment Strategy Group

Statistics on the Current State of the Market – as of January 5, 2018

Market Index WTD MTD YTD
Equity      
S&P 500 Index 2.6% 2.6% 2.6%
Russell 1000 Index 2.5% 2.5% 2.5%
Russell 1000 Growth Index 3.3% 3.3% 3.3%
Russell 1000 Value Index 1.7% 1.7% 1.7%
Russell 2000 Index 1.6% 1.6% 1.6%
MSCI World Index 2.5% 2.5% 2.5%
MSCI EAFE Index 2.4% 2.4% 2.4%
MSCI Emerging Markets Index 3.7% 3.7% 3.7%
STOXX Europe 600 2.3% 2.3% 2.3%
FTSE 100 Index 0.5% 0.5% 0.5%
TOPIX 3.5% 3.5% 3.5%
CSI 300 Index 2.7% 2.7% 2.7%
Fixed Income & Currency      
Citigroup 2-Year Treasury Index -0.1% -0.1% -0.1%
Citigroup 10-Year Treasury Index -0.5% -0.5% -0.5%
Bloomberg Barclays Municipal Bond Index 0.0% 0.0% 0.0%
Bloomberg Barclays US Aggregate Bond Index -0.3% -0.3% -0.3%
Bloomberg Barclays Global Aggregate Index -0.1% -0.1% -0.1%
S&P/LSTA U.S. Leveraged Loan 100 Index 0.3% 0.3% 0.3%
ICE BofA Merrill Lynch U.S. High Yield Index 0.8% 0.8% 0.8%
ICE BofA Merrill Lynch Global High Yield Index 0.8% 0.8% 0.8%
JP Morgan EMBI Global Diversified Index 0.5% 0.5% 0.5%
JP Morgan GBI-EM Global Diversified Index 1.8% 1.8% 1.8%
U.S. Dollar per British Pounds 0.3% 0.3% 0.3%
U.S. Dollar per Euro 0.2% 0.2% 0.2%
U.S. Dollar per Japanese Yen -0.5% -0.5% -0.5%
Real & Alternative Assets      
Alerian MLP Index 4.5% 4.5% 4.5%
FTSE EPRA/NAREIT North America Index -2.2% -2.2% -2.2%
FTSE EPRA/NAREIT Global Index 0.3% 0.3% 0.3%
Bloomberg Commodity Index -0.3% -0.3% -0.3%
Gold (NYM $/ozt) Continuous Future 1.0% 1.0% 1.0%
Crude Oil (NYM $/bbl) Continuous Future 1.7% 1.7% 1.7%

Source: FactSet, Neuberger Berman.