The Carousel of Concerns, a mainstay of this bull market, continues to turn. As one worry recedes, another comes to the forefront. In 2019, investors will grapple with concerns, including a peak in economic and earnings growth and the wildcards of trade and monetary policy. While the future is always uncertain, investors are now being better compensated for taking on uncertainty as valuations have improved across the capital markets.
The balancing act between risk and reward is magnified as we head into 2019. Given recession risks remain low and profits are set to increase, we anticipate a modestly positive year for financial markets with wide price swings. Importantly, we expect tactical opportunities to present themselves as markets overshoot in both directions, and investors should be prepared to adjust as the evidence shifts.
Key themes to watch this year are:
- Moderating growth, as global economic expansion has likely peaked for the cycle
- A magnified balancing act between risk and reward
- Improved starting points following the sizable step up in interest rates over the last year