The first quarter of 2018 started like a lamb but went out like a lion as long-dormant volatility began to roar. Inflation fears, trade tensions and geopolitical risks contributed to market turbulence, leaving many investors wondering whether these issues will put a damper on global growth – and end the US market’s nine-year bull run. Franklin Templeton’s senior investment leaders continue to see strong fundamentals to counter the concerns.
Attractive Growth Prospects Ahead – Will Trade Disputes Create a Headwind?
Global GDP Growth Estimates (% Change Year Over Year)1
2018-2022
While the fundamental backdrop looks strong overall, recent trade tensions represent one of the bigger risks we see.
The global economy appears to be maintaining strength, with projected 2018 GDP growth expectations at 4.7% for major advanced economies and 7.3% for emerging market economies, and continuing at a strong pace through 2022. For the most part, the global economy is experiencing coordinated growth in a way we haven’t seen in a long time, if ever. Our senior investment leaders discuss how trade disputes may impact global growth.
US, China and Beyond: The Impact of Trade on Global Growth
Date Recorded: 12 April 2018
Inflation Has Been Muted Despite a Strong Labor Market
US Personal Consumption Expenditures & US Unemployment Rate
31 December 2007 – 28 February 20182
We anticipate inflation will likely tick up at a gradual pace.
The US market’s nine-year bull run is about to enter its 10th year accompanied by global growth and US unemployment at 4.1%. Our fixed income CIO shares his view on what factors may continue to be a restraining influence on inflation, while our head of equities suggests what a return to normalization may mean for valuations.
Inflation: is it a Real Threat?
Date Recorded: 12 April 2018
The Hunt for Yield has Steered Non-US Investors to The US Municipal Market…
Non-US Holdings of US Municipal Debt (Billions) & Share of Total US Municipal Debt Held Outside the US(%)3 2007–2017
Growing demand from non-US buyers signifies a tremendous search for yield on a global basis.
…in Search of Higher Yields
Yields of Select US Municipal and Global Government Bonds
As of 31 March 2018
US municipal bonds offer a competitive yield
It’s been a challenging environment for investors seeking income and yield. Our panel weighs in on potential income opportunities and the demand outlook for the municipal bond market.
Watch The Full-length Video
Date Recorded: 12 April 2018
Outlook Contributors
Stephen H. Dover, CFA
Head of Equities
Michael Hasenstab, Ph.D.
Chief Investment Officer,
Templeton Global Macro
Christopher Molumphy, CFA
Chief Investment Officer, Franklin Templeton Fixed Income Group®
Ed Perks, CFA
Chief Investment Officer, Franklin Templeton Investment Solutions
Manraj Sekhon, CFA
Chief Investment Officer, Franklin Templeton Emerging Markets Equities
- Source: World Economic Outlook Database, April 2018. Important data provider notices and terms available at franklintempletondatasources.com
- Source: Bloomberg data provider notices and terms available at franklintempletondatasources.com. Most recent data available.
- Source: US Federal Reserve. Most recent data available.
- Source: Thomson Reuters for AAA taxable municipal bond yields; Bloomberg for government bond yields. Important data provider notices and terms available at franklintempletondatasources.com
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds adjust to a rise in interest rates, the share price may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging market countries involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Such investments could experience significant price volatility in any given year. High yields reflect the higher credit risk associated with these lower-rated securities and, in some cases, the lower market prices for these instruments. Interest rate movements may affect the share price and yield. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. Municipal bonds are affected by interest rate movements. Municipal bond prices, and thus, a tax-free income fund’s share price, generally move in the opposite direction of interest rates.
IMPORTANT LEGAL INFORMATION
The information provided is not a complete analysis of every material fact regarding any country, region, or market. Comments, opinions and analyses contained herein are those of the speaker and are for informational purposes only. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of April 12, 2018, and may change without notice. The analysis and opinions expressed herein may differ or be contrary to those expressed by other business areas, portfolio managers or investment management teams at Franklin Templeton Investments. Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.