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Quarterly Perspectives

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LATEST QUARTERLY PERSPECTIVES

The length and strength of expansions

Theme overview

U.S. Economy: Autumn has arrived

Long summers and short winters

  • The fading effects of fiscal stimulus caused growth to cool in the fourth quarter. Nonetheless, year-over-year 2018 U.S. growth was impressive at nearly 3%.
  • In its 10th year of expansion, the economy is now metaphorically in the midst of a transition from a particularly hot summer to a more temperate autumn. Economic growth should moderate to a 2% pace this year.
  • The economy looks “late cycle.” A lack of supply due to low unemployment, rising wages, higher interest rates and firming inflation make the economy more vulnerable to a recession. However, we do not believe winter is on the horizon.
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Theme overview

Fixed income: Flexibility in an uncertain environment

Global central banks remain alert to changing economic conditions.

  • The Federal Reserve (Fed) appears to be on pause with rate hikes, and global central banks are broadly mirroring the Fed’s caution, carefully taking stock of their respective economies and prospects for growth.
  • In light of this, investors prepared for rising rates may also pause and review fixed income portfolio holdings, while remaining vigilant of potential monetary policy changes in the future.
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Global monetary policy


Returns and valuations by style

Theme overview

U.S. equities: Slower profits but pockets of opportunity

Positive growth, but risks on the downside

  • The equity market is off to a strong start in 2019, with returns driven by multiple expansion but earnings estimates under pressure.
  • 2019 earnings are expected to decelerate sharply from the elevated pace seen in 2018 as a result of the fading effects from tax reform and slower global growth; that said, there are additional downside risks to earnings in the form of margin pressure and a strong dollar.
  • Elevated geopolitical and policy uncertainty will likely lead to another volatile year for equities; investors should look to dampen volatility by striking a more balanced total return profile between dividends and capital appreciation.
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Theme overview

International equities: Not the time to pull over

A downshift in global growth, but not a stall

  • 2018 was a disappointing year for markets, especially for international equities, which largely underperformed those in the U.S. This was driven by concerns around global economic growth and its potential impact on corporate profits.
  • So far in 2019, we have seen a big turnaround in sentiment, as investors are looking forward and seeing reasons for optimism that global economic growth will soon stabilize, translating into modest but positive earnings growth.
  • Three key developments this year have enabled that change in sentiment: the Fed pause, the decrease in trade tensions and the early signs of stabilization in China.
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Global economic growth

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