The Year Ahead 2015

The following is courtesy TD Asset Management and is posted with permission.

Bruce Cooper, Chief Investment Officer, TD Asset Management Inc.

After a period of relative calm in financial markets, volatility returned in 2014, bookending the year and reminding investors that investing is not always a smooth journey. While many are hoping this volatility was just an anomaly, we at TDAM believe that it offers a preview of what investors can expect for 2015.

Over the past year, economic growth outside of North America was disappointing. Chinese growth, which is a significant contributor to global gross domestic product (GDP), has slowed considerably and is likely to continue to slow. In Europe, progress appears to have stalled and the euro zone continues to wrestle with the spectre of deflation, and in Japan, Abenomics has not yet lived up to expectations, with the country recently slipping into a technical recession. The central banks in all three regions have pledged to expand their accommodative monetary policies in order to stimulate and support the waning economies. However, we believe that despite the best efforts of global central banks, most of the world is in for a long period of persistent low growth — the hangover from a long period of debt accumulation. On the other hand, the U.S. has emerged as an economic bright spot. On a relative basis, the U.S. economy began to shine in 2014 as employment improved notably, GDP surpassed expectations and both consumer credit and business investment increased. With these economic improvements, monetary policy in the U.S. began to diverge from the global trend of increasing accommodation. After several years of very accommodative policies, the U.S. Federal Reserve started to move toward a more neutral stance by reducing and then ending its massive monthly asset purchase program. While the unified accommodative efforts of global central banks have provided abundant liquidity and suppressed financial market volatility over the past few years, with the U.S. no longer increasing its accommodation, volatility is likely to increase to more normal levels, such as we’ve witnessed over the final quarter of 2014.

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