Slow growth and low (even negative) interest rates have defined the global economy over the last few years. While aggressive monetary policy has been used to reignite growth and fend off disinflationary pressures, the economy has been stuck in low gear peddling uphill. After years of underwhelming growth that benefited the wealthy but left far too many folks behind, frustrated voters chose what seemed unthinkable.
First, the United Kingdom voted to leave the European Union. Then, the US elected an outsider, anti-establishment candidate as president. This surging populist sentiment has huge implications for the way forward and may have created a New Abnormal.
SSGA, in its 2017 ETF and Investment Outlook, reported that it expects modest economic growth in 2017 as monetary policy gives way to fiscal policy and infrastructure spending in the US and potentially elsewhere. In the US, fiscal stimulus, infrastructure spending and tax reform are likely to boost growth and inflation in the short term. All this has longer-term fiscal implications in a world that already has too much debt and where the future remains uncertain.
SSGA encourages investors to:
- Seek Income at a Reasonable Risk-investors should look beyond traditional sources to structure fixed income allocations to provide diversification, stability and income and pursue quality, not quantity of yield.
- Position for a Reflationary Environment-Investors should move beyond TIPS and invest in real assets to make portfolios more resilient to the growing risk of inflation.
- Look to Mitigate Headwinds from Episodic Volatility-consider an allocation to gold, which has a low correlation to stocks and bonds, and lower risk multi-factor smart beta strategies.
For the complete outlook and report, please click here
