The bull market in equities is aging but remains very much intact...
For more than a year now, equity markets have enjoyed an unusual combination of low volatility and near-uninterrupted price gains due to a combination of accelerating economic growth, improving earnings, accommodative monetary policy and still-low inflation.
Economic growth should continue to improve, but expectations have risen, which means positive surprises will be harder to come by. At the same time, central bank policy is slowly tightening, which could contribute to market volatility. Additionally, accelerating growth and tighter policy may finally trigger an uptick in inflation, especially in wage inflation given the low level of unemployment. Should this occur, we expect bond yields will climb, which could jolt other financial assets including equity markets. We don’t expect yields to rise unimpeded, but an ascending period of peaks and troughs looks likely.
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