Even though U.S. yields remain low by historical standards, they are attractive versus their high-quality developed market peers. However, this doesn’t mean that U.S. investors should ignore opportunities in foreign bond markets. Similar to our forecast for U.S. bonds, we expect that rising interest rates and fading central bank stimulus are likely to put pressure on foreign developed bonds in 2018.* Emerging market debt (EMD), which generally pays higher rates of interest, and in many cases are issued by countries with higher rates of gross domestic product growth and lower debt levels than many developed nations, may have a brighter r

Global economic growth exceeded expectations in 2017, and we expect another strong year in 2018. The Citi Global Economic Surprise Index, which was well above zero for most of the second half of 2017, signaled that global economic data was exceeding expectations [Figure 1]. Drivers of strong global performance in 2017 included steady growth in the United States, better-than-expected economic data in Europe, continued positive performance from Japan, and stabilization in China following several years of deceleration.

We expect the global economy to expand at a rate of 3.7% in 2018, measured by gross domestic product (GDP). Monetar

We favor U.S. and emerging market (EM) equities for tactical global allocations. After reviewing our thoughts on the U.S. equity markets in last week’s Weekly Market Commentary, we thought we’d expand our 2018 equity outlook with a focus on global markets. From a regional perspective, we favor the U.S. and EM over developed foreign markets broadly, although the improving outlook in Japan is noteworthy.

International Equities Performance Review

The year 2017 was excellent for international equities, especially for EM. The MSCI EAFE and EM indexes returned 25.6% and 37.8%, respectively, both ahead of the S&P 500

As we entered 2017, we expected that steady growth and up to three Federal Reserve (Fed) rate hikes would drive low- to mid-single-digit returns in the broad high-quality bond market. In the end, with three Fed rate hikes in 2017 and a total return of 3.7% for the Bloomberg Barclays U.S. Aggregate Bond Index, these forecasts aligned with reality. Our expectation that the 10-year Treasury yield would end 2017 in the 2.25% – 2.75% range was also met, with the 10-year yield ending the year at 2.41%.

Our favored high-quality sectors were relative winners for the year as well. Corporate bonds, as measured by the Bloomberg Barcla