The best of times or the worst of times?

6th January 2017 by Chris Iggo

Economic momentum is improving. It is supporting risk assets and delivering good returns to investors. Can it last? It can if the Federal Reserve (Fed) does not need to raise rates too quickly, if the new US Administration can deliver on tax cuts, if corporate animal spirits are revived and if Trump shuts down his Twitter account. For bonds the adjustment in the rates term premium should continue, albeit at an un-alarming pace. This means credit can still outperform somewhat. However, fixed income remains expensive and a more bullish risk exposure needs to wait until yields and credit spreads are significantly higher than they are today.