While the broad-based acceleration has subsided for the moment, the absolute level of growth appears to be solid. Ongoing trade friction and rising energy prices remain a concern.
The U.S. Federal Reserve, Bank of Canada and Bank of England have all raised rates recently, and the European Central Bank remains on schedule to wind down their asset purchasing program by year-end, with rate hikes expected in late 2019. Only the Bank of Japan has pledged to continue its bond buying and zero interest rate policy.
Inflation appears stable for the moment, near to central bank targets and expectations remain well contained. We are watching for any signs of increased inflation in the U.S. as a result of import tariffs, as these now cover a large selection of products used at every stage of manufacturing and retailing.
We are expecting solid earnings growth to persist and a reinforcing cycle of reinvestment and capital expenditure should add further runway to the current expansion. Late in the quarter, we started to see a rotation from some of the large cap growth names that have led the market higher over the past two years into more stable, value-oriented stocks.
As discussed earlier, there is no shortage of events on the horizon that could lead to increased market volatility and potential drawdowns. We continue to view the overall environment as equity-friendly but we remind our clients to diversify and to remain within their target allocation bands.
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