Anticipating future economic and market movements is always a challenge. We're fortunate to have one of the most sought-after economists in the business, Jeffrey Kleintop, Chief Global Investment Strategist, Charles Schwab, speaking this year at our annual industry conference, SS&C Deliver. Jeffrey is frequently cited in national media outlets such as The Wall Street Journal and The New York Times, and he is a regular guest on high-profile business and news networks.
We recently caught up with Jeffrey to get his perspective on current events and market trends in advance of his keynote at SS&C Deliver in September.
Q: What major risks do you foresee facing the US investment market in both the near future (remainder of 2018) and with a 2025 outlook?
A: In our Mid-Year 2018 Top Five Global Risks for investors, we address what we see as the major risks for the rest of this year: geopolitics (particularly trade and tariffs), selling by individual investors in pursuit of returns, an inflation surprise that forces central banks to raise interest rates more quickly than expected, a sharp and sustained rise in the value of the U.S. dollar, and fading economic momentum.
Looking out over the longer term, we see a shift in style, capitalization and geography that could take a big bite out of investors’ portfolios who haven’t rebalanced from their leaders to their laggards. Another longer-term risk can also be found in the changing world demographics as the percentage of workers supporting the global population plunges in the years ahead.
Q: What do you see as the biggest market disrupter coming in 2019?
A: Next year may see an inversion of the three-month to 10-year yield curve, a historically reliable indicator of an oncoming recession and bear market for stocks.
Q: Do you see a commonality in businesses that are thriving in a fast changing, unpredictable market? What differentiates successes from failures?
A: One common element of success in the current environment is to focus on a growing market. For example, the rising middle class in Asia is a megatrend of the next decade.
Q: We have seen technology companies replacing old-line manufacturers in the Dow Jones index, and companies that didn’t exist a decade ago now valued in the tens or hundreds of billions. Are we running the risk of another tech bubble similar to 2000?
A: The percentage of the overall market that is composed of stocks that have very high valuations is very different than in 2000. That said, it may be time for the long-term performance trend favoring growth stocks – notably tech – to reverse and lead to value outperformance over the coming 5-10 years. Being prepared and rebalancing from growth to value now may turn out to be wise.
Jeffrey will share more of his valuable global insights as a keynote speaker at SS&C Deliver 2018 in Las Vegas, September 12-14.