BlackRock’s Global Investment Outlook 2019
We identify three new market themes and update our asset views for 2019. We see growth in the global economy and corporate earnings slowing, and expect the Federal Reserve to become more data dependent in increasing rates. For investors, greater uncertainty calls for balancing risk and reward.
We expect global growth to slow next year, and see US growth stabilising at a much higher level than other regions, even as the effects of 2018’s fiscal stimulus fade. Markets are vulnerable to fears that a downturn is near, even as we see the actual risk of a US recession as low in 2019. Global earnings growth is also set to moderate in 2019, tracking the more subdued growth outlook.
We see the process of tighter financial conditions pushing yields up (and valuations down) set to ease in 2019. Why? US rates are en route to neutral — the level at which monetary policy neither stimulates nor restricts growth. We estimate the current neutral rate at around 3.5%, right in the middle of the 2.5%-to-3.5% long-term range identified by the Fed. Yet we expect the Fed to pause its quarterly pace of hikes amid slowing growth and inflation in 2019.
Balancing risk and reward
Increasing uncertainty – primarily about the impact of rising trade conflicts – points to the need for quality assets in portfolios. But building more resilient portfolios is about more than just dialing down risk, as overly defensive positioning can undermine investors’ long-term goals. We advocate exposures to government bonds as a portfolio buffer, flanked by high-conviction allocations in areas that offer attractive compensation for the risk.
Find out more in the full report.