The fourth quarter was certainly a tumultuous time for investors. With the new year, the sun appears to be breaking through all of the clouds of doom and gloom. Of course a more dovish Federal Reserve, at least in word, and what appear to be positive developments on the “trade war” front have helped. However, it’s not all rainbows and unicorns. Global economic growth is still slowing and analysts noticeably lowered their 2019 earnings growth expectations last quarter. Obviously this is all priced in to asset values but could we be in for negative earnings surprises if the impact of slowing growth and tariffs has been underestimated? Maybe. We could also be in for better than expected growth if analysts were too punitive in their assessments.
The bottom line is investor sentiment has improved in the short-term but I expect it is still quite skittish and could go into convulsions again at the first sign of bad news. Thankfully, this too shall pass (eventually) and we will move on to better times…hopefully. With central banks continuing to remove liquidity (although it appears the Fed may be rethinking its current plan), the end/bottom of the long-term interest rate cycle imminent and numerous geopolitical issues that have collectively drawn comparisons to the atmosphere just before World War II, it’s likely volatility and its close cousin uncertainty are here to stay.
One thing is for sure. The next 10 years in the investment markets (and the world for that matter) will not be like the last 10 years. Make sure you’re prepared.