Our central economic scenario is relatively benign. We see a modest slowdown in global growth in 2019, with limited inflationary pressure. The implication is that interest rates rise only gradually in the US and not at all in the euro area and Japan, while China loosens policy. Market participants have become sensitive to the degradation of fundamentals, even as the data remain overall positive and showing growth. We foresee a tricky year ahead for investors. Our forecasts are for modest equity returns, with risks skewed to the downside. Bond returns should be positive, though the upside has fallen with recent market moves. Credit markets look vulnerable in places. In the absence of a strong directional beta call, the focus shifts to alpha and cash. We believe this environment may well suit a discriminating approach, favouring multi-asset strategies, high-quality equities and bonds, US and EM equities, value over growth and active versus passive.
For a full outlook of probable economic scenarios and how they might impact bond and equity markets in 2019, download Vantage Point.
Shamik Dhar, chief economist, and Alicia Levine, chief strategist, at BNY Mellon Investment Management