Scott Minerd, Chairman of Investments and Global CIO, and Guggenheim’s Macroeconomic and Investment Research Group analyze in 10 annotated charts the global macroeconomic trends most likely to shape Federal Reserve (Fed) monetary policy and investment performance in 2018, and set the stage for recession in late 2019/2020.
Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”
- Stocks will rise in 2018, but by the end of the year investors should look for signs of late-cycle imbalances and begin to position more defensively. Historically, the S&P 500 has rallied by 16 percent, on average, in the penultimate year before a recession, before turning lower.
- Tax reform will provide a 0.2 to 0.5 percent boost to real gross domestic product, but it may not save the GOP’s majority in the House of Representatives.
- With job growth likely to continue to run above the sustainable rate of labor force growth, we expect unemployment to fall to 3.5 percent by end-2018, its lowest rate since 1969, meaningfully below the Fed’s forecast of 3.9 percent, and wage growth will accelerate.
- Growth has rebounded in 2017, and we expect that it will accelerate further in 2018. As such, core inflation should return close to the Fed’s 2 percent target by the end of 2018.
- Since the Fed will overshoot its employment mandate, it will deliver four rate hikes in 2018 to cool the overheating economy and labor market.
- While our 2018 economic outlook is positive, we are heading into the late stages of the business cycle. Our analysis suggests the next recession will occur by the end of 2019 or early 2020.
- Given current tight credit spreads, investors are not being compensated for the buildup in credit risk that will be exposed in the years ahead.
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Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Real Estate, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.