Market Outlook 2019:
Shifting Signals

Economic indicators continue to signal that a strong U.S. economy should continue to drive positive global growth. Yet investors are anxiously eyeing a host of issues that could slow an expansion that by traditional standards is already in the late stages of the business cycle.
The uncertainty provoked by hard-to-forecast political risks and changes in interest rates continues to roil asset prices worldwide as markets seek a fresh consensus on the prospects for 2019 and beyond. 
Which issues are most critical to consider going into the new year? And what steps can investors take without over-reacting to current volatility?

Read Our Managers’ Outlooks

Growth: How Much Slower?

Western Asset - Focus on Growth: We think the claims of runaway growth are exaggerated and we will likely see a more modest result in 2019, along with continued low inflation…if foreign trade and inventories do indeed revert to 2015-2016 trends and either equipment investment or housing sputter, U.S. economic growth could drop to the 2.0%-2.25% range.”  

Brandywine Global - The Limits of U.S. Growth:  We expect U.S. economic growth to come off its lofty levels. The supercharged effects of tax cut stimulus should start to wear off in 2019. We have also already started to notice that some important sectors of the U.S. economy looked soft in late 2018; this weakness should extend into 2019.”

Volatility: Already Here

Royce & Associates - A Shift Towards Cyclicals: “We have been arguing for a while now that the market would enter a period characterized by increased volatility, rising rates, and lower overall returns. All of this, of course, would lead the market back to more historically typical return and volatility patterns.” 

QS Investors - Choppy Markets Ahead:  We expect that the future will look quite different from the past nine-plus years of rising equity and bond markets amid low volatility. Several key market indicators are currently at historically high or low levels, suggesting ample potential for mean reversion.” 

Rates: Ripple Effect

ClearBridge Investments - Liquidity is the Question:  “Earnings were the primary determinant of 2018 stock market performance, but we think liquidity will be the driving factor next year. Perhaps the most important liquidity driver is credit spreads, which determine the cost of borrowing for consumers and businesses.” 

Martin Currie - Current Volatility Long-Term Opportunity:  “Higher rates are not going to be good news for some expensive equities, especially the stocks of companies which have gorged on cheap liquidity for the last decade. As such, we expect to see volatility persisting in equity markets.” 

Trade: Uncertainty Will Continue

RARE Infrastructure - Time to Get Defensive?  “We don’t see the trade war ending any time soon. There may be “deals” announced with great fanfare on a cease fire from time to time. But an agreement addressing the substantive issues anytime soon seems unlikely to us.” 

EnTrustPermal - A Plethora of Risks:  “While the Trump-Xi meeting at the G20 Meeting in Buenos Aires offered a respite from trade rhetoric that has negatively impacted markets and global growth, the risks of further escalation clearly remain and could impact markets over the course of 2019.” 

Real Estate: Local Strength

Clarion Partners - An Extended Business Cycle  “Going into 2019, the U.S. commercial real estate sector remains attractive to global investors seeking income and low volatility late in this cycle. Healthy supply/demand fundamentals are likely to continue to benefit from a relatively solid U.S. macroeconomic backdrop.” 


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