Business Cycle Crucial For Gains


    The business cycle will be crucial for further gains in risk assets next year, now that the global tide of ‘easy money’ that inflated valuations in recent years has crested, says BlackRock Investment Institute’s ‘2016 Investment Outlook.’ ‘Cycles Out of Sync’ suggests investors pay much more attention in 2016 to the business, credit, and valuation cycles as the impact of the monetary policy cycle fades. With valuations no longer cheap and corporate profit margins under pressure in many markets, economic growth is needed to boost revenues. “Careful navigating” will be critical in 2016 because key cycles now appear to be “out of sync,” it says. In particular, valuations appear to have leapt ahead of the business cycle in many markets, especially in the U.S. “We have essentially been borrowing returns from the future,” it says, and the outlook is made “even more challenging because long-term trends such as aging populations, high debt loads, and technological change are intersecting with short-term cycles, meaning that the high growth rates of the past may not return,” says Ewen Cameron Watt, global chief investment strategist with the institute. “But the good news is that we see a modest pick-up in global growth and a renewed investor focus on fundamentals.”