Economic & Strategy Viewpoint
Caspar Rock: 2019 first quarter update
We see slower growth in 2019 but the Fed’s policy shift should support markets. Politics remains the key near-term risk.
Positive returns across the board in the first quarter
Emerging market and technology stocks performed particularly strongly in the first three months of 2019. Bonds also rallied, supported by low inflation and a sharp change in tone from the Fed.
Looking ahead: slowdown but no recession
Though growth is slowing, we do not expect a recession this year. Lower oil prices and rising wages will support consumer spending, while a US-China trade deal should boost business confidence. Furthermore, the Fed said it no longer expects to raise interest rates this year. This clear change in policy has eased concerns about interest rates rising too far too fast.
Key risks for 2019: politics and inflation
Equity markets would be unsettled by a “no-deal” Brexit or the failure of the US and China to reach a trade deal. A pick-up in inflation over the course of the year would cause equity and bond investors to question the Fed’s changed stance, resulting in higher volatility.
Positioning little changed
Our positioning has not changed substantially over the course of the quarter. We remain neutral on equities and underweight bonds due to low absolute yields. We have marginally reduced our risk exposure as asset prices have risen over the last three months.