Outlooks

Will emerging markets stocks rebound in 2019? Attractive valuations, strong forecast earnings growth, structural reforms, and an abating dollar headwind suggest they will.

The fourth quarter of 2018 saw U.S. equities decline materially, with especially steep falls in December. During the fourth quarter the equity market as measured by the S&P 500 generated a total return of -13.5%, bringing full year S&P returns to -4.4%. While disappointing, these results need to be seen in the context of a broader and much more severe downturn in global equity markets.

The process of creating The Ten Surprises begins in the summer when I organize four lunches in the Hamptons for serious investors. About 100 people attend including hedge fund managers, private equity titans and even some academics. One of the benefits of this is that it gives me some clarity on where the consensus is, and that is essential before the Surprises can be determined.

Global economic activity appears to be slowing down. But slowing down and tipping into recession are two different things. Isee limited evidence to suggest the global or US economy is heading toward recession in the near term. But investors should be ready for higher volatility and modest total returns as we transition toward slower growth in this mature phase of the expansion.

Ten charts illustrate the macroeconomic trends most likely to shape Fed policy and investment performance in 2019 and beyond.

Currently, there are few, if any, Wall Street analysts expecting a recession at any point in the future. Unfortunately, it is just a function of time until the recession occurs and earnings fall in tandem.

As a conceptual exercise, it may be useful to frame the current episode of market volatility (both upside and downside volatility) from the perspective of the stock market declines in 1998 and 2000.

An uptick in corporate defaults in 2019 will mark the beginning of a prolonged period of stress in the corporate bond market.

Today, I’m going to introduce you to an economist I have read for years. His name is Richard F. Moody. He is the Chief Economist at Regions Financial Corporation (Regions Bank) headquartered in Birmingham, Alabama. Regions is the largest bank in the South with almost 1,500 branches spread across the southeastern US and the Midwest.

In recent days, we’ve heard a number of analysts gushing that the S&P 500 is vastly cheaper than it was only a few months ago. It’s worth noting that they’re actually referring to an index that is now less than 10% below the steepest speculative extreme in history.

We think it’s better to position our portfolios based on 2019 fundamentals than structuring them by looking backward at December 2018’s volatility.

GMO's Martin Tarlie argues in a new white paper that the U.S. stock market was a bubble from early 2017 through much of 2018, and that the bubble started to deflate in Q4 2018, despite strong fundamentals.

The fourth quarter of 2018 did not usher in the typical year-end rally that investors have come to expect in recent years. Global equity markets got off to a weak start, failed to recover, and ultimately plummeted, as weak business indicators collided with perceived governmental policy risks with respect to the Federal Reserve.

The market over the last 10 years was built up largely on the back of growth-tech stocks. The FAANG stocks ended up an awful lot like a teenager hitting a massive, early, growth spurt. Participants in the market were ecstatic at the rate of growth and the benefits.

The new year begins as the prior year ended – with the federal government shut down and no compromise in sight. Of course, the government will reopen at some point, likely when the average American gets tired of dealing with the lack of government services.

How might 2019 shape up across the investment landscape? Here’s our take on the key issues to pay attention to.

2018 will be broadly remembered as a year when nothing worked and daily stock market volatility spiked. This contrasted with 2017 where seemingly everything pushed higher, and volatility was low. But in 2018, nearly every single asset class and all but one major stock market index (Brazil) around the globe posted negative returns.

In the famous book, Strange Case of Dr. Jekyll and Mr. Hyde, Dr. Jekyll and Mr. Hyde were one human being with a split personality. Dr. Jekyll healed people and Mr. Hyde murdered them. This economic environment and the U.S. stock market have the same kind of split personality.

The quip, “if you aren’t confused, you aren’t paying attention” needs to be replaced: “with the Fed confused, you better pay attention.” You may want to buckle up. Let me explain.

In our outlook for 2019, we believe politics and policy out of Washington will continue to drive – and in some cases, weigh on – markets, much like they did in 2018. Investigations and manufactured crisis are likely to contribute to uncertainty. Trade tensions persist, though on a more positive note, relations between the U.S. and China seem to be improving.

With US stocks facing multiple risks, it’s easy to lose sight of the positive trends that could help the market recover. In 2019, investors should search for select stocks with the right attributes to produce positive surprises in a potentially tricky market environment.

Low Volatility and Quality offer potential benefits in stressed markets.

As we approach year-end, we find ourselves in an unfamiliar place. Despite mounting worries over the past couple of years about politics and other issues, the market and economy continued to grow. Through the first half of 2018, the markets were moving higher, despite a few breakdowns, and economic growth was accelerating.

The markets have not been kind to investors lately. There were precious few bright spots in the recent quarter, and it seems there was nowhere to hide, except cash. Our instincts, however, tell us that cash is not a long-term solution.

Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies.

The past year was a rough ride for bond investors. Will 2019 deliver more of the same?

Free from a house view on economies, markets or stocks, J O Hambro CapitalManagement’s (JOHCM) fund managers invariably see the world in different ways. We asked a number of our managers for their thoughts on the outlook for their asset class next year, what they would like to see and the possible surprises that 2019 could bring.

Steuern! I always liked that word, it seems to exude a no nonsense seriousness. It’s a German verb meaning Control, or to be in control of, something that seems to have been singularly lacking in the markets these last few days.

The U.S. economy will overcome risks and continue to grow in 2019.

Brandes believes increased market volatility and valuation readjustments in the final quarter of 2018 mean a better outlook for a global value investing approach in 2019 and beyond.

We believe the U.S. is likely to experience a recession by the end of 2020. How might it stack up to previous ones?

I expect to spend this year Living Dangerously. Yes, I’m thinking of the 1982 film starring a very youthful Mel Gibson and Sigourney Weaver, based on an earlier Christopher Koch novel. It has an Asian setting and features corrupt politics, neophyte journalists, international intrigue plus a gender-bending Chinese dwarf. If you aren’t sure how all those fit together, then welcome to 2019. We are all stuck in this craziness and can only make the best of it.

Major economies are positioned to keep growing in the year ahead, but risks are mounting.

The January Absolute Return Letter is always about the pitholes one could fall into in the year to come and, lo and behold, financial markets are behaving as if we have already fallen into one. December was a most difficult month, and January hasn't exactly started with all guns blazing either.

In September, this year looked like it was going to be one of the great years for the Ten Surprises. Oil was at $75 (West Texas Intermediate) and the S&P 500 was at 2,940. The Surprises had oil at $80 and the S&P at 3,000. The Ten Surprises are judged on whether they work out at some point during the year, not where they are at year-end.

Equity markets send a timely reminder about diversifying into alternatives.

There’s no sugarcoating it: 2018 was hard on emerging markets. But as Nietzsche (and Kelly Clarkson) said, what doesn’t kill you can make you stronger. And as 2019 begins, we see many pockets of strength—and opportunity.

Early in 2018 we said the US economy has gone from being a Plow Horse to Kevlar. Nothing that has been thrown at the economy since – neither trade conflicts nor tweets, not higher short-term interest rates nor the correction in stocks – is likely to pierce that armor.

When the “bull is running” we believe we are smarter and better than we actually are. We take on substantially more risk than we realize as we continue to chase market returns and allow “greed” to displace our rational logic. Just as with gambling, success breeds overconfidence as the rising tide disguises our investment mistakes.

Global markets are jittery as we start the new year with the same volatility drivers in place as last year. In our view, it's time for your clients to expect and prepare for periodic bouts of volatility.

Despite any positive economic signals, investors are anxiously eyeing a host of issues that could slow global growth -- and tilt the markets in a new direction.

Which issues are most critical to consider going into the new year? And what could be the consequences for the markets, both here and abroad? Read our annual outlook.

In spite of its recent track record, value is not dead. It’s just been wounded a few times since the financial crisis, as investors favored growth-oriented segments of the market amidst easy monetary policy.

Markets dropped sharply after the Fed raised interest rates again today and indicated two additional increases are likely in 2019.

Rick Rieder and Russ Brownback argue that slowing growth, peaking inflation and tightening financial conditions combine to make a strong case for a Fed policy rate hiking pause in early 2019.

As is our custom, we close out the current year with our geopolitical outlook for the next one. This report is less a series of predictions as it is a list of potential geopolitical issues that we believe will dominate the international landscape in the upcoming year.

See what themes may impact global markets in the new year from Invesco Global Market Strategist Kristina Hooper and her team.

Early last week we published our collective 2019 outlook summary and today’s report will put some more visual meat on the bones of that summary.

As forces ranging from rising rates to trade disputes have raised the stakes for global markets and investors, our investing leaders step back for big-picture views of what these may portend for equity, fixed income, and real assets and other alternative markets.

Public policy can be corporate-friendly or corporate-unfriendly. But what if it’s corporate-uncertain? Then investors are faced with volatility. Part I of our Year Ahead investigates the current corporate-uncertain environment.

U.S. economic growth was strong in 2018, but some of the forces behind that strength were either short-term or likely to fade going forward.

As we get ready to move into 2019, the macro backdrop points to a less favorable mix of growth and inflation at a time when central bank balance sheets are starting to shrink. Even if growth is simply returning to trend, the year ahead is likely to be more challenging—with populism and China looming as key downside risks.

As we approach year-end, we find ourselves in an unfamiliar place. Despite mounting worries over the past couple of years about politics and other issues, the market and economy continued to grow. Through the first half of 2018, the markets were moving higher, despite a few breakdowns, and economic growth was accelerating.

Can markets grind higher in 2019 before the clock runs out on the current cycle? See what our strategists’ views are for the year ahead.

By the end of the summer I became convinced that the United States equity market was setting itself up for a powerful post mid-term election rally. The economic fundamentals were strong: unemployment was at a 40-year low and real growth was better than 3%; the Federal Reserve was raising rates...

Of all the delusions that have infected the minds of economists, central bankers, and the investing public in recent years, perhaps none is as short-sighted and pernicious as the idea that aggressively low interest rates are “good” for the economy and the financial markets.

For some investors, increasing exposure to gold has been a knee-jerk reaction to bouts of heightened financial market volatility. Franklin Equity Group's Steve Land says there's more to gold than that. And he explains why he's positive about both the prospects for gold and for gold equities.

Today we’ll look at a new book by Ray Dalio called Principles for Navigating Big Debt Crises in which he examines those debt cycles and what we can do about them.

Let’s be clear. October’s market decline was a rather mild warning shot. At its lowest close, the S&P 500 lost -9.9% from its September peak, before rebounding in recent sessions. As I noted during the 2000-2002 and 2007-2009 collapses, intermittent “fast, furious, prone-to-failure” rebounds are among the factors that encourage investors to hold on through the entirety of major declines.

Market risks come in three flavors: recession risk, economic shock risk, and risks within the market itself. So, what do these risks look like for October? Let’s take a closer look at the numbers.

Perhaps the biggest news of the last week was the meeting of the Federal Open Market Committee (FOMC), the policymaking arm of the US Federal Reserve (Fed). As expected, the Fed raised interest rates. But what was far more interesting were the hints provided about the future. In this blog, I discuss my outlook for the Fed and highlight five issues to watch in October.

What impacts could escalating trade tensions and rising U.S. interest rates have on global markets and economies in the months ahead? See what our strategists’ views are for the fourth quarter of 2018 and beyond.

Coming off of a strong year for the economy and markets, we had high hopes for 2018, but the first half of the year didn’t play out as planned. Between the stock market pullback early in the year; the slowdown in economic growth; and rising risks, largely in trade, expectations softened. As we hit the midway point for 2018, though, it looks as if those initial hopes might be more realistic than they seemed even a month ago.