GLOBAL EQUITY MARKET OUTLOOK FAVOR U.S. AND EM
John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial
We favor U.S. and emerging market (EM) equities for tactical global allocations. After reviewing our thoughts on the U.S. equity markets in last week’s Weekly Market Commentary, we thought we’d expand our 2018 equity outlook with a focus on global markets. As discussed in our Outlook 2018: Return of the Business Cycle publication, from a regional perspective, we favor the U.S. and EM over developed foreign markets broadly, although the improving outlook in Japan is noteworthy.
INTERNATIONAL EQUITIES PERFORMANCE REVIEW
The year 2017 was excellent for international equities, especially for EM. The MSCI EAFE and EM indexes returned 25.6% and 37.8%, respectively, both ahead of the S&P 500 Index’s 21.8% return. International equity market gains were broad based, as only two MSCI World countries saw their markets decline in 2017 (Russia and Israel). In general, overseas equity markets benefited from U.S. dollar weakness, improving and better-than-expected global growth, a rebound in earnings, and commodity gains. Within the developed international benchmark, Europe slightly outperformed while Japan slightly underperformed. Within EM, where strength was led by China, some of the risks carried more bark than bite; U.S. trade relations with China and Mexico soured less than feared, while EM generally shrugged off Federal Reserve (Fed) rate hikes and the start of balance...