correlated environment finally fractured in 2017. Central banks
started taking the economy off life support. Rates rose with equities at long last—a sign that markets foresaw inflationary expansion, not just more quantitative easing ahead. Dispersions climbed.
The US grew above trend, and there are even signs of wage inflation. Generational trends like the growth of emerging markets and
their consumer wealth effect are again top-of-mind, with emerging
markets breezing by their developed market counterparts.
Call it a “New, New Normal,” a point where markets finally
moved beyond the famed “New Normal” of the deflationary stagnation that defined the post-financial crisis era.
Forward-thinking market participants are coming to grips with
the new market reality. “The great shadow of the financial crisis of
2007-2009 may finally be lifting from the global economy,” Erik
Knutzen, chief investment officer, multi-asset class, at Neuberger
Berman, wrote in a research report in October.
Strong global growth (for two years now, every major region in
the world has seen its GDP grow) following persistently deflationary
conditions in the wake of the financial crisis underpins the new
“Over the summer, we learned that all 45 of the economies
tracked by the Organisation for Economic Co-operation and Devel-
opment (OECD) are growing. It is the first time in a decade that
this has been the case. Moreover, growth is accelerating in 33 of the
45,” Knutzen wrote. “We are experiencing a relatively rare period
of extended, synchronized global growth, a defining aspect of the
‘Goldilocks’ environment of steady growth, low rates, and low vola-
tility,” the firm had predicted in a prior forecast.
The theme of global growth set the pace for the world’s stock
“This year has been characterized by two broad themes in
equity market flows. The first has been the flow of capital toward the
ongoing economic recoveries in Europe, Japan, and the emerging
world. We believe these trends are sustainable given the background
of synchronized global growth and moderate inflation, and, at the
large-cap level, the slightly stretched valuations in the US relative to
the rest of the world,” Knutzen wrote. “The second, even stronger
theme has been the flow of capital toward larger, somewhat defen-
sive, growth-oriented companies, which has left smaller, more
cyclical stocks lagging.”
The pile into technology stocks like Facebook, Apple, Netflix,
and Google shows investors’ desire to capture growth.
“This global phenomenon has really been exemplified in the
US by the flows into high-quality, large-cap exporters and multinationals, and the so-called ‘FANG’ stocks from the technology sector,”
Knutzen wrote. “These are companies that either benefit from global
growth and a weaker dollar, or can grow earnings without broader
economic growth. Softness in inflation data, flattening yield curves,