The first six months of 2019 have certainly been eventful. Trade friction between the U.S. and China has intensified, geopolitical tensions have increased, global bond yields have fallen, and global growth has slowed to the point that major central banks have reversed course and are becoming more accommodative. Despite all of these developments, all of the major asset classes have delivered solid returns so far this year.
Looking more closely at our key themes for 2019, we see:
Slowing but positive global growth
We are starting to see the expected deceleration, but the long economic expansion should continue through 2019 and into 2020/2021.
Continued central bank tightening
Central banks have pushed off any attempt to “normalize" interest rates and are currently leaning towards a softer policy stance.
Interest rates and inflation drift higher
The anticipated cost pressures on the labour front have yet to appear and overall inflation remains below target in much of the world. Rates may retrace some of the drop experienced late in 2018 and the first half of this year, but any increase is now likely to be modest.
Moderate equity returns
Earnings growth has slowed and equity prices have recovered, leaving modest room for gains over the balance of the year.
Persistent volatility
Geopolitical uncertainties and market events assure us of continuing volatility in the months ahead, and while potential outcomes are both positive and negative, we expect the market to react more forcefully to any unexpected crisis or disappointments.
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