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Global economy's 'Goldilocks' conditions have 'aged rapidly' this year, fund manager says

  • "We are still bullish on equities, although 'Goldilocks' has aged pretty rapidly this year," Mark Phelps, CIO of global concentrated equities at Alliance Bernstein, said in an email to CNBC on Friday.
  • The so-called "Goldilocks" market refers to an economy growing at just the right speed to support stock prices but not so strongly as to trigger a significant uptick in inflation.
  • In December, Goldman Sachs echoed Phelps' sentiment, saying that while it was "pro-risk" in equities this year, the investment bank's top strategists expected time was "running out for Goldilocks."

The prosperous market conditions of high growth and low inflation will soon have run its course, according to the chief investment officer at Alliance Bernstein.

"We are still bullish on equities, although 'Goldilocks' has aged pretty rapidly this year," Mark Phelps, CIO of global concentrated equities at Alliance Bernstein, said in an email to CNBC on Friday.

The so-called "Goldilocks" market refers to an economy growing at just the right speed to support stock prices but not so strong as to trigger a significant uptick in inflation.

Speaking to CNBC's "Squawk Box Europe" on Friday, Phelps said an increase in economic activity around the world since the start of 2018 had been a catalyst for stronger-than-anticipated corporate earnings growth. This could create a scenario in which the global economy starts "running too hot" for the central banks — thus prompting them to start hiking interest rates.

'Inflation scare'

Earlier this week, Dallas Fed President Robert Kaplan said raising U.S. interest rates would give the country the best chance to keep pushing the economy forward.

Kaplan forecast three rate hikes by the U.S. central bank this year, a sentiment reflected in financial markets. Markets believe a March rate hike is almost a certainty judging by trading in the fed funds futures market, a key indicator of where investors think the Fed funds rate will move.

A subsequent hike is expected in June, with a third likely coming in September, according to the CME's FedWatch tracker.

Jerome Powell, Chairman of the Federal Reserve
Ting Shen | Xinhua | Getty Images
Jerome Powell, Chairman of the Federal Reserve

The European Central Bank (ECB) kept its interest rates unchanged at a meeting on Thursday, though it also removed a key commitment to increase the "size and/or duration" of its massive bond purchasing program. This fueled expectations the central bank may soon normalize monetary policy in the euro area.

When asked whether he thought rising inflation would be the key risk to continued economic strength, Phelps replied that while he thought the frenzied market sell-off last month was triggered by an "inflation scare," it would likely "cool off" again this year.

In December, Goldman Sachs echoed Phelps' sentiment, saying that while it was "pro-risk" in equities this year, the investment bank's top strategists expected time was "running out for Goldilocks."

— CNBC's Jeff Cox contributed to this report.