05 Feb White Paper – 2017 Long-Term Capital Market Forecasts
By Voya Investment Management
Looking back on 2016, it was a year of surprises.
The year began with a big equity market sell-off, based on worries about a U.S. recession and a hard landing in China. The weakness culminated in February, with the first panic reading from our equity sentiment indicators in five years. It was then that equities started their long march higher; but bond yields continued to decline, plagued by fears of global deflation. All of that changed in June with Brexit, when the central banks came to the rescue once again. Fast forward to the end of the year, and the U.S. presidential election win by long-shot candidate Donald Trump was greeted with a resounding cheer from the equity market and the U.S. dollar. In sum, if there was one year that could be characterised by the expression, “May you live in interesting times,” the past year would be it.
One of the unusual hallmarks of this post-financial crisis recovery in asset prices has been the persistence of declining bond yields. In most equity bull markets there is a period early in the recovery that marks the low point of bond yields. This is when asset allocators start to rotate away from the safety of bonds toward equities as they warm to the idea of better growth. But that has not happened in any consistent fashion during this recovery.