Higher volatility but fundamentals support equities – Danske Bank

Analysts at Danske Bank, see short-term volatility elevated, but they point out that fundamentals still support equities on a 3-12 month horizon.

Key Quotes:

“Last year was quite extraordinary, as growth rose across regions and risks diminished. Increasing economic growth, very high optimism among businesses   and consumers and record-low volatility (as measured by the VIX index) were a good cocktail for equities, which rose steadily over the year. This year, with slower economic growth and more risks stemming from the political situation in Italy and the US-China trade conflict, it is not a big surprise that volatility has increased.”

“However, as economic growth remains above potential and earnings growth is solid, we still expect equities to move higher but the ride is going to be bumpier than in 2017. Then again, it was 2017 that was extraordinary and we have just returned to a more ‘normal’ situation.”

“Following a strong end to 2017, we see clear signs that the business cycle is losing momentum. While global growth might be decelerating, we do not expect it to turn into a marked downturn over the next few years – rather, we believe growth in the world economy should go from boom to cruising speed in line with its potential. We expect global growth to come in at 3.8% this year, declining to 3.7% in 2019 and 3.6% in 2020.”