March is proving to be an important month for equities. Strong US employment data, the Fed raised rates and global stocks markets continued their move higher.

 

Our thesis that equity markets would be lower by mid-March hasn’t proven out, despite a number of catalysts that offered reasonable kindling for a correction. We think this gives us a clear sign of how strong investor sentiment is at present. It also corresponds with the fact that investor cash levels - both institutional and retail - are currently high…or said differently, that consensus is waiting / hoping for a sell-off. In my experience, markets tend move away from consensus, not toward it. The takeaway, then, is that global equities seem reasonably poised to continue their move higher through this Spring and Summer, even if not always in a straight line.

 

At this point, the main big-picture risk is that global economic data shows slowing consumer spending. In developed countries, this is a natural response to the rise in global price inflation that occurred in 2016. A reasonable case can be made that this inflation will prove transient, with a lot of it due to the recovery in energy prices that started almost exactly one year ago. If true, this further supports the case for rising equities markets over the coming months / quarters.

 

In China however, slowing consumer spending is the result of stimulus measures winding down. While the rest of the economy appears to be continuing on strongly without the stimulus, an ongoing drop in consumer spending there would likely trigger the same investor concerns that we saw in mid-2015. So within the context of us having an overall positive outlook for global equities, we'll be keeping a close-eye on developments there.