When the S&P falls, where will you stand?
“S&P 500 Is Already Trading at Wall Street’s Year-end Forecast,” read the headlines of a recent Bloomberg Markets report which boldly stated that “2017 was basically over.” Bloomberg analysts predicted the average of the S&P 500 would be $2,364 for 2017, however just last week the index touched $2,366, which exceeded the year-end target by February.
In the past 12 months, the index has grown by 20%. Half of the gain came after the U.S. presidential results in November. The Trump administration’s agenda sparked a surge of confidence in financial markets, which is unlikely to hold. Goldman Sachs warns that growth is quickly approaching peak optimism. For investors counting on tax cuts and economic expansion to stimulate corporate profits, reality is soon to hit.
Goldman’s chief U.S. equity strategist, David Kostin stated in an interview with Bloomberg that, “Financial market reconciliation lies ahead. We are approaching the point of maximum optimism and the S&P 500 Index will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected.” Kostin also noted that corporate earnings for 2017 have fallen by 1%, while the S&P 500 has surged ten times as much. Clearly something is about to give out.
Bloomberg compiled an updated average year-end estimate for the S&P 500 at exactly where it is trading today. Despite this, the National Federation of Independent Business’s monthly survey indicated that executives have the strongest outlook in more than a decade. But with the S&P 500 at the end of a bull market, where is the confidence coming from?
In response to market uncertainty, investor confidence has shifted to alternatives. More than a third of investors have exposure to at least four alternative asset classes, according to Preqin’s H1 2017 Investor Outlook: Alternative Assets.
“Preqin’s investor surveys demonstrate the considerable appetite for alternative assets within the investor community, with many looking to ramp up their participation within these markets,” said Andrew Moylan, Preqin’s head of real estate products. “It is notable that although the proportion of investors that are not involved in the alternatives industry has remained relatively consistent, those with exposure are now expanding and diversifying their exposure to different asset classes. This has been driven by sustained investor appetite, in part due to these asset classes’ ability to outperform public markets over the long term.”
When examining the five most common alternative investments, one trend is clear. Alternatives seek to store, protect, and grow capital, backed by a track record that beats traditional markets. Evolving managers are using innovative analytic technology to target new asset classes with unprecedented precision. Venture capital, private debt, and art funds are shaping the portfolios of 2017.
Getting exposure to alternatives is easy if you have the right tools. Learn how you can invest in art and other alternative assets here.