We believe the global economy is growing nicely and, for the first year since 2007, all G20 economies are expected to post an increase in GDP. With most of the world's economies growing in lockstep, the global economy looks set for a period of its strongest and broadest growth in some time.

While sustained, self-reinforcing growth is new to this expansion, it has been a feature of several past cycles, including 1993-1994, 1998-2000, and 2003-2005. The recent breakout reflects a number of positive developments. Rising corporate profits have revived capital spending, while strong labor markets and relatively depressed inflation are fueling consumer spending. Together, this has lifted confidence, and a positive feedback loop has fallen into place, where the pickup in global GDP and strengthening financial conditions are boosting spending even more.

Figure 1

All G20 Economies Expected to Grow in 2017 and 2018

Most encouraging is the expansion in global investment that is underway. Investment is a key indicator of economic strength because it shows how confident firms are in committing resources that will increase their future output. For the first time in many years, investment growth in advanced economies is now forecast to overtake consumption growth, while more stable commodity prices are expected to boost capital formation in commodity-exporting countries. This should help to improve productivity, albeit modestly, and raise potential economic growth in the quarters ahead.

Figure 2

Global GDP Growth Projected to Rise

The sustainability of this global upswing looks likely to continue well into 2018. Political uncertainties may ultimately slow the recovery in investment, and progress on much-needed structural reform in many developed economies is yet to materialize in any significant way. Challenges also may arise as major central banks begin to reverse years of ultra-accommodative monetary policies, raising the possibility of mistakes and/or unintended consequences that could impede the global economy and unnerve financial markets. Still, an increasing number of indicators are pointing in the right direction, and hopes of a broader, more enduring upturn are growing.

Figure 3

Hiring Plans Point to Steady Employment Gains Ahead

The health of the U.S. economy is underscored by the strength of its labor market. With companies expected to create another 2 million jobs this year, the headline jobless rate is now effectively at a level that the Fed considers full employment. In fact, given the strength in hiring intention surveys and job availability measures, we believe the unemployment rate could fall even lower in the quarters ahead.

Figure 4

Real Median Household Income at All-Time High

Steady, strong job growth has been the hallmark of the current expansion, boosting confidence and supporting spending. More Americans are working than ever before and as a result, households are now enjoying a period of strong, sustained income growth after a long stretch of stagnation. As long as jobs are growing, wages are rising, consumers are confident, businesses are investing, and financial conditions and interest rates continue supporting the economy, the U.S. expansion should remain on a solid footing.

Investment Outlook

With prospects for U.S. and global economic growth generally optimistic, we continue to expect stocks and high-yield fixed income to move higher over the next year, while investment grade bonds will likely encounter some price pressure due to gradually rising rates. Investors, however, appear to have fully priced in this positive outlook and we currently see few compellingly valued asset classes, whether we look at equities or fixed income. In addition, downward bouts of equity volatility are possible until we gain more clarity on the outcomes for tax, healthcare, and regulatory changes out of Washington. Greater patience is therefore warranted when deploying cash, and investors should adjust expectations for more modest portfolio returns over the next 12 months.

Important Disclosures

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

This material is available to advisory and sub-advised clients of City National Rochdale, LLC, a Registered Investment Advisor and a wholly owned subsidiary of City National Bank.