Global Markets – 4Q18 Review
The 4Q 2018 drawdown in stocks resulted in negative full-year returns, but equities were not alone in this regard – as almost all asset classes finished 2018 in the red.
Global equities hit the brakes in the fourth quarter, with all major averages posting double-digit percentage losses to end the year. Prior pullbacks in the current bull market have often provided an attractive entry point for investors, yet there was a buyer’s strike in the fourth quarter. The wall of worry simply became too high for equities to overcome, as investors had to contemplate global growth concerns, ongoing Brexit uncertainty, the continued trade skirmish between the U.S. and China, and tightening measures by central banks. The 4Q drawdown in stocks resulted in negative full-year returns, but equities were not alone in this regard – as almost all asset classes finished 2018 in the red.
The investing landscape was dominated by geopolitical headlines in 2018 – and this theme is likely to continue into 2019. The market hates uncertainty, so some resolution on fronts such as China-U.S. relations and Brexit would be positive for investor sentiment.
As central banks are in varying stages of reversing the largest global liquidity exercise in history, there is bound to be a corresponding impact on equities. The U.S. has been normalizing monetary policy over the past eighteen months, while the European Central Bank (ECB) ended its bond purchase program in December. The ECB continues to maintain a relatively accommodative stance, stating that it will keep its key interest rates unchanged through the summer of 2019, and even then be dependent on relevant economic growth data. In Cambiar’s view, the investment implication is that selectivity should take on increased importance, vs. the rising tide environment that has been in place for much of the past ten years.
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