Swim between the flags in 2018

Founder and Chief Investment Officer of Montgomery Investment Management
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Every year presents opportunities and traps and while the financial press is fast filling with predictions for 2018, here we change the focus by thinking about the boundaries marked by the bull and bear cases. Think of the extremes as the flags between which you must swim.

The bulls’ case

To begin with the economic backdrop is supportive. The global economy is described as displaying “strong”, “synchronised” growth, and ‘Goldilocks’ is the adjective attached to the economy. The US is growing at an annualised 3-4%, China is growing at over 6.7%, and the EU is set to beat expectations with robust growth of 2.3% this year.

In keeping with this growth theme, many point to high and double-digit rates of earnings growth for US corporates. Many argue that valuations are not stretched with the PE ratio for the S&P500 at an “undemanding” 21 times.

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