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Alternative Market Briefing

PineBridge's Kelly: late cycle concerns are overblown

Friday, December 21, 2018

Bailey McCann, Opalesque New York:

Are markets late cycle, or merely dealing with a mid-life crisis? A new outlook from Michael Kelly, global head of multi-asset at PineBridge suggests that even with recent stock market volatility we aren't quite headed toward the late cycle correction many expect.

"I think everyone who is predicting the back half of 2019 as the official start of the late cycle market is going to have a lot of explaining to do," Kelly said in an interview with Opalesque. "I just don't think we're going to see the inflation that everyone is expecting." Kelly adds that he thinks the US economy will remain steady at 3% growth. And, as we go through 2019, inflation could stay below the Fed's 2% target.

Against that backdrop, Kelly is looking for the Fed to take a pause. On Wednesday, the Federal Reserve raised its benchmark rate from 2.25 to 2.5%. The statement from the FOMC on the hike shows an additional two rate increases for 2019, down from the three originally expected. Broadly, analysts believe that the Fed start looking at more data sources to get a sense about the health of the economy before they raise rates next year.

Given where technology and productivity growth are at, the economy looks more like where it was in the mid to late 1990s, Kelly says. "Capability-enhancing investments involving artificial intelligence, robotics, the cloud, and the internet of things are growing, and there's evidence to support strong busines......................

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