Markets in a Minute

Insights on the latest global investment news from our Chief Investment Officers, Omar Aguilar and Brett Wander.

December 21, 2018

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  • Equities: Opportunities to explore for 2019

    Omar Aguilar, Ph.D.

    Chief Investment Officer,
    Equities and Multi-Asset Strategies

    Cautiously optimistic amid elevated complexity

    We are cautiously optimistic about equities for 2019. However, the market backdrop seems set to become increasingly complex compared with the euphoric post-election 2017, and relatively upbeat 2018. Elevated volatility, lower liquidity, decelerating global economic growth, trade challenges—particularly between the U.S. and China—and economic and political problems with Brexit and Italy may play pivotal roles in the performance of equities in 2019.

    Higher-quality U.S. stocks poised to outperform

    We expect high-quality U.S. stocks to become the leaders during the first half of 2019. Interest rates seem set to continue rising in the U.S., while the European Central Bank and Bank of Japan contemplate reducing their accommodative policies. We believe that small-cap equities may face increased volatility and underperformance amid this environment.

    A rotation toward defensive growth

    We expect high-quality, growth-oriented U.S. equities to outperform in the first quarter of 2019, on the heels of what is starting out to be one of the best holiday shopping seasons in the U.S. in many years. Furthermore, political gridlock, a flat Treasury yield curve, profit-margin pressure, and expectations for earnings growth to decelerate mean that an eventual shift toward defensive growth sectors in 2019 may be inevitable.

  • Fixed Income: Fictions to avoid in 2019

    Brett Wander, CFA

    Chief Investment Officer,
    Fixed Income

    Fiction: The horizon for rate hikes is unlimited

    We believe that the Fed may press pause on its current rate-hike campaign at some point in 2019. Overnight interest rates are increasingly close to “neutral,” a balancing point at which rates are viewed as neither encouraging nor inhibiting U.S. economic growth. In spite of the lowest unemployment levels in decades, inflation in the U.S. has recently been trending lower, so short-term rates may not rise by much next year.

    Fiction: The yield curve foreshadows recession

    Conventional wisdom holds that when the yield curve flattens and then inverts, where short-term rates rise above longer-term rates, a stock market sell-off and recession aren’t far behind. We think the only thing the flat yield curve is telling the markets right now is that inflation is under control. We believe this backdrop will translate into largely range-bound bond yields in 2019.

    Fiction: Credit sectors offer great opportunities

    We expect continued market volatility in 2019, potentially leading higher-yielding credit sectors to underperform. Instead of relying upon these securities to balance the risks associated with an equity allocation, we believe that Treasuries and other safe-havens would provide more suitable protection for investors.