Midyear Outlook 2019: Silver Linings, Danger Zones, and Opportunities

Strategists talk capital market prospects, from central bank policy and tariffs to the likelihood of a global recession.

While global growth is clearly decelerating, the data has yet to indicate any type of US or global recession. In fact, most of the data still points towards expansion. Even so, recession is a possibility that investors may want to factor into their portfolio decisions — perhaps hedging against it rather than betting on it.

David Lafferty points out that it’s difficult to get a real global recession without US participation, and that is unlikely as long as US consumer data remains solid. Esty Dwek notes that tariffs may be a growing risk, depending on how quickly their impact filters into the broader global economies.

Both strategists agree that returns on equities will continue to be positive as long as earnings hold up, but that volatility will stay with us as markets grind higher. Dwek believes that fixed income yields may go up a bit after being driven down so sharply in the first half of 2019. However, the silver lining for European investors may be that the European Central Bank is even less likely than the US Fed to raise rates in 2019.

On the other hand, Lafferty notes that as rates have moved up on the short end in the US, American investors have the ability to invest defensively, buying high quality bonds with positive interest rates. According to Dwek, there are roughly $11 trillion worth of global bonds with negative yields.
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