Equity valuations will resume their upward trend and will outpace those of bonds and cash over the next 12 to 18 months, according to new research.
BMO Harris Private Banking, Toronto, published this finding in an October 2012 Market Commentary that provides a forecast for U.S. and global equities through 2015.
The optimistic forecast for equities, the report states, is based on BMO’s expectation that “global economic growth will be moderate, equities will remain relatively less expensive than bonds and North American corporate earnings will grow, albeit slightly.”
Fueling the rise in equity valuations and growth of the global economy, the report adds, is the rapid industrialization of emerging market economies and the resulting demand for commodities. Offsetting the rise is debt deleveraging in developed economies.
BMO expects the U.S. economic recovery to continue, with gross domestic product growth pegged at just above 2%. China’s policymakers, the report adds, will likely use fiscal and monetary tools to support GDP growth above 7%. In the Eurozone, BMO anticipates that risks connected with sovereign debt will “remain manageable.”
BMO additionally predicts that North American corporate earnings will increase by mid-to-high single digits over the next 12 months, supported by economic growth and “well contained labor costs.”