With U.S. consumer confidence reaching 11-year high in January the consensus is pointing to an estimated 3% GDP growth in the US, with a possibility that for the 1st time in many years US economy will contribute more to global growth than China.
We believe more volatility should be expected in 2015 as the Fed begins to normalize rates. This has several ramifications for capital markets and investment portfolios. Low oil prices and higher rates may impact industrial and energy sector capex.
Many commentators blame current market turbulence on the plunging oil price. We believe it is more about lingering geopolitical issues and a pending Federal Reserve (Fed) rate hike.
First, we expect volatility to be elevated compared to the levels witnessed from 2012 to 2014.
Second, we continue endorsing tactical stand within fixed income. Two- to five-year bonds are likely to prove the most vulnerable to higher rates.
Although volatile, equity markets are expected to perform, although marginally, positive, benefited by the stronger dollar and growing US economy.
Since we are cautious about downside risks in the equity markets we endorse measured and disciplined execution of equity strategies within portfolios.