But while investors across the board acknowledge the positive macro picture, many are questioning how long it can last — particularly with mounting debt, trade war concerns and tightening liquidity late in the economic cycle.
“I think it’s surprising right now that the U.S. is the standout in a global context; you have to wonder when this can continue in isolation,” said Sonja Laud, head of equity at Fidelity International, noting early signs of weakening in China and softening in Europe.
This is largely due, as Veru noted, to the Donald Trump administration’s fiscal stimulus in what many believe is the last phase of the cycle. But while there is no significant shock yet to negate momentum, signs point to softer activity the third quarter of the year, Laud said.
Meanwhile, there is increasing scrutiny and inward focus coming from the Fed, she added, which is a sign that the outlook may not stay so rosy — something that would have repercussions far beyond the U.S.
“My worry is about global dollar liquidity and the liquidity picture in total, because next to the interest rate hikes, we have to understand what they are going to do to the balance sheet,” Laud said, noting the impact this has on emerging markets in particular. Tightening liquidity alongside rising Treasury issuance — on top of already high borrowing and debt — “naturally sucks dollar liquidity back in the country.”
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