201710.20
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Investment View Q4 2017

The optimism in the last 18 months has increased the global stock market capitalization with an epic $18.5tn, which is a bigger number than the GDP of the US.

Today, corrections have proved limited The main US equity index S&P 500, for example, is currently going 333 calendar days without a higher than 3% dip on a closing basis, the record being 370 days ending in 1928.

So, should we now throw in the towel on calls for a correction, and join the buy the market herd? Not quite, instead, our thesis has shifted that this correction will be more likely towards the end of Q1 2018 when G4 Central Bank liquidity will peak. The most obvious catalyst to hurt today’s consensus and to cause a big correction is a spike in wage and inflation data, bringing back “fear of the Fed”. In our view higher bond yields and higher bond market volatility are necessary to trigger a major correction in equity and credit markets.

We have now entered the fourth quarter period which has historically been kind to investors. Tactically it still makes sense to lock in some profits, perhaps hedge against any near-term downside. We can only say that stocks continue to rise despite all figures showing signs of “over-bought-ness” that one might wish to conjure up. We may sound like a broken record, noting stock valuations look high; that leverage is high, that the Fear & Greed Index is at its highest levels in the past decade . . . but it does not matters; stocks just continue to advance.

Download the Full Report: Hoving & Partners’ Investment View Q4 2017