Economic growth may be bottoming
After nearly two years of decline, economic growth may be close to bottoming. While actual data has yet to improve, leading indicators of growth have stabilized and/or turned higher in most major regions. With this updated forecast, we expect global growth in 2020 to match that of 2019, which is an encouraging sign after two years of deceleration.
Stocks soared in 2019, but could still have room to run
Equities delivered impressive gains in 2019 amid low interest rates, stable inflation and moderate economic growth. Since the summer, economically sensitive sectors have outperformed defensives, value stocks have led the growth style, and international markets have participated in the rally. In the past, these types of market rotations have been associated with improving economic and corporate profit growth, and may indicate the bull market has room to run.
Low-yield world is likely to persist
Although bond yields have rebounded somewhat in the last quarter, we don’t believe this increase marks the start of a sustained rise in yields. Our models suggest that bonds are susceptible to valuation risk as yields are below their equilibrium levels, especially outside North America. However, we think that any increase in yields is likely to be gradual and extend over a long period.
Executive summary
Financial markets staged a solid recovery in 2019 as a number of key macro challenges from last year faded and new tailwinds emerged. Although risks remain, several positive signals have led us to a more constructive outlook with lesser odds of a negative scenario unfolding.
Economy
After nearly two years of decline, economic growth may be close to bottoming. While actual data has yet to improve, leading indicators of growth have stabilized and/or turned higher in most major regions.
Fixed Income
Many central banks, including those in the U.S., the Eurozone, China and India, have lowered rates and some have restarted quantitative easing.
Equity Markets
Equities delivered impressive gains in 2019 amid low interest rates, stable inflation and moderate economic growth.
Asset class commentary
Despite recurring bouts of volatility, the stock market ultimately found its form in 2019, first unwinding the damage done in late 2018 and more recently reaching new highs. Two main developments have underpinned this swell of optimism.
The outlook for developed-market currencies depends largely on individual country factors.
Uncertainty over the outcome of the 2020 U.S. elections could dent the appeal of holding U.S. dollars next year.
Canada’s currency still enjoys the support of yields that are higher than many other developed-market nations.
Regional preferences
Market views
Direction of rates
Emerging markets outlook
Emerging-market equities have underperformed developed markets over the past nine years given a strong U.S. dollar and slowing earnings and GDP growth relative to developed markets. We believe that these factors will reverse over the coming years and will ultimately support an improvement in emerging-market stock performance relative to developed markets.
