Senior Managing Director Asset |Management Abbot Downing
The fundamentals of the U.S. economy still look fairly good,” says Evans. Momentum in employment, strong household balance sheets and low gas prices should create steady consumer demand. Equities are still the way to go.
While the stock market may temper a bit, Evans continues to “favor equities over fixed income. The long bonds argument would really rely on a global deflationary environment,” but “inflation tends to win out.”
Geopolitical concerns, especially in the Middle East and Ukraine, could cause tremors. Set aside simmering political crises, and the economy should remain healthy so long as confidence remains high and the fed raises interest rates moderately.
Principal and Senior Economist | Vanguard Investment Strategy Group
“Valuations have been flying very high, but with the correction in october, there will be a negative driver for next year,” Aliaga-Díaz predicts. He expects interest rates to “remain low.” Valuations of equities are mostly accurate. However, “we are very worried about the one-year outlook—there’s just too much volatility.” Investors should avoid overweighting their portfolios to favor any one specific sector, although the stock market will remain key for returns.
Aliaga-Díaz’s greatest concern is “the case of global secular stagnation.” Fiscal austerity and low confidence are constraining global demand. While the U.S. is relatively healthy, there is a risk of a “deflationary spiral,” unless europe’s central bankers can get ahead of it. Synchronized action by central banks in Europe will be key to global economic health; in the U.S., infrastructure spending would promote short- and long-term growth.
Managing Director Chief Investment Officer | U.S. Trust
Hyzy expects 3-to-4 percent global economic growth, with the U.S. as the main engine. Job growth, a “manufacturing renaissance” and low energy costs should boost consumer spending. Europe is a wild card. China is expected to add stimulus. The upshot? “The U.S. is decoupling from the rest of the world,” says Hyzy.
The stock market is still the place to park your cash, Hyzy believes. Energy infrastructure and technological advances—like mobile payments, virus protection and 3D printing—may be particularly fruitful.
The biggest risk is that central banks in Europe delay quantitative easing. “If Europe doesn’t get a handle on its deflationary winds, they are more likely to export their deflation to others,” Hyzy says. If the fed raises rates too drastically or delays too long, growth in the U.S. could be undermined. Well-timed policy moves in europe and the U.S. will help maintain world economic health.
Chief Investment Strategist, U.S. | J.P. Morgan
“Equities will once again outperform fixed income,” Moore says, particularly with interest rates rising. Healthcare and tech should be particularly strong. Investors may want to look to hedge funds, which “can outperform in a challenging rate environment.” Bottom line: investors should consider overweighting equities, underweighting fixed income and overweighting hedge funds.
Policy missteps in Japan and poorly timed deployment of stimulus in Europe could jeopardize the economy. “The key element to restoring confidence and keeping investors focused on fundamentals will be a steady hand from policy makers,” which should help maintain economic health, she says.
Managing Director Chief Investment Strategist | Blackrock
“The stock market will do ok,” Koesterich predicts, “but you have to have more moderate expectations.” Infrastructure and technology are good bets. “Investors want to look at either global funds or international funds.”
“For the last five years a lot of investor attention has been focused on the government,” Koesterich notes. “I think next year is going to be much more focused on the real economy.”
Low wage growth and uncertainty about increases in interest rates may spook investors. “One percent might be as far as [interest rates] move in 2015,” Koesterich says. A pickup in household spending is key to economic health. Low oil prices will cushion the economy over all.
Deputy Chief Investment Officer | Wells Fargo Private Bank
“The united states is the best mediocre economy out there right now,” Davidson says. “Balance sheets are very pristine,” and “valuations are pretty reasonable.” A market correction “is a possibility rather than a probability.” Many investors may actually be under-allocated to stocks because of “PTSD” from the financial crash. Investors should look to diversity overseas to take advantage of the buying power of the growing global middle class.
Geopolitical factors may pose the greatest danger—whether it’s instability in the Middle East or Ebola. Also, “disinflation or even deflation can become a kind of pandemic,” says Davidson. Europe needs to deal with “similar demographic problems as Japan that could lead to a deflationary death spiral.” Economic health depends on the fed unwinding its balance sheet in an orderly fashion.
Managing Director Chief Investment Officer for U.S. Equities | Allianz Global Investors
Investing in stocks is “safe, and it’s almost a necessity compared to alternative assets,” Migliori says. Small caps have potential in the first part of the year, and technology and healthcare are also bright spots. Yet “this has been in some ways one of the most hated bull markets of all time.” Many investors are still anxious about the great recession, hedge funds “are struggling,” and “most of the funds don’t justify their fees.”
China could be a source of instability, as energy consumption data could indicate decelerating growth there. In the U.S., “Some complacency has set in that we’ve decoupled from Asia.” Economic strength will depend on well-executed quantitative easing in Europe and an uptick in first-time homebuyers in the U.S.
Liz Ann Sonders
Chief Investment Strategist | Charles Schwab & Co.
With an interest rate hike expected from the fed midyear, “what you find is a bull market that isn’t killed but with more bouts of volatility,” says Sonders. The market is going to be closely tied to capital investment. Consumer spending won’t be a big driver, and government won’t be a big drag, she says. Diversification will be key, as always.
“My concern is that we have in our sites the next potential debt crisis—public debt.” Another cloud on the horizon is a potential “crisis of confidence in the ability of central banks to cure all our ailments.” Still, contained inflation and well-timed fed action should maintain economic health.
Chief Investment Officer | OppenheimerFunds
“The stock market in 2015 is probably going to provide very modest returns,” Memani says. “By the second half, it is expected to tighten. For the equity markets to get to a different level, U.S. growth has to be much faster.” Still, equities should be the investment of choice. Municipal bonds are the best bet in fixed income. MLPs could also provide strong positions. Finally, if Germany and France successfully align their fiscal strategies, European stocks could offer significant upside.
However, “if policy support fades, the fundamental adjustment process that is ongoing” will injure the economy. Economic health will also depend on boosting consumption and investment (infrastructure spending is an obvious solution).
Chief Investment Strategist for Wealth Management Americas | UBS
“I still think the background is constructive for equities,” Ryan says. “We’ve seen more and more evidence that the recovery has broadened and deepened.” He expects mid to high single-digit returns for U.S. stocks, assuming the fed acts “very, very cautiously.” Investors must shape their allocations around “diverging growth paths” between the U.S. and Europe, and the U.S. and Japan.
The biggest risk “is deflationary overhang,” particularly given wishy-washy policy in europe. The U.S. can still lead global growth, but it can’t “carry global growth.” Future prosperity depends on corporate tax reform, a middle path between energy exploitation and environmental stewardship, and “prudent and pragmatic regulation,” says Ryan.