(Un)Steady as She Goes: 2018 Investment Outlook
At a Glance
The desk sees ongoing equity market strength as a primary driver supporting the U.S. dollar and overall financial stability. Per the full note from Goldman Sachs, the U.S. equity bull market, now nearly nine years in, suggests resilience; however, volatility may signal potential bearish shifts. Given this environment, traders should remain alert for signs of market corrections that could affect the dollar's strength. The upcoming economic landscape is static for the moment, with no high-impact events looming on the calendar.
Key Takeaways
- 01U.S. equity bull market is nearing nine years, supporting dollar strength.
- 02Recent volatility prompts caution but doesn't negate equity outlook.
- 03No high-impact economic events expected in the near future.
Full Analysis
What the desk is arguing
The desk frames this as a scenario in which sustained equity performance bolsters the dollar, yet the recent market volatility raises questions regarding future directional trends. According to Goldman Sachs, the continuing bull market, stretching for almost nine years, contrasts with typical volatility indicators that could prompt bearish sentiment.
Supporting this view, Goldman Sachs suggests that despite recent fluctuations, investors are advised to maintain equity exposure; a signal that aligns well with potential dollar appreciation in light of sustained risk appetite. Furthermore, the current economic environment features low expectations of immediate high-impact market events, which could maintain the status quo in the FX space.
How other firms see it
In this context, firms aligned with this bullish outlook towards equities, and by extension the dollar, include jpmorgan. They foresee a target of 1.10 for the FX pair, allowing for an optimistic growth trajectory. Conversely, those like bofa are taking a contrary stance with a more conservative target of 1.04, indicating skepticism regarding the durability of current equity support.
Key currency pairs to monitor include USD/EUR, which may reflect moves driven by U.S. equity performance and overall market risk sentiment. Additionally, fluctuations in the USD/JPY pair may further illustrate market transitions given the differing monetary policies of the Federal Reserve and the Bank of Japan.
Market Implications
Traders should focus closely on the performance of the USD against the EUR and JPY, particularly as any shifts in equity confidence could directly influence these rates. Monitoring for corrections or unexpected volatility may yield actionable insights.
From the original
The U.S. is in its second-longest equity bull market in the post WWII-era, at nearly nine years. Can financial markets continue on their upward course, or is the recent volatility a sign that bearish conditions are on their way? Sharmin Mossavar-Rahmani, chief investment officer
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