In the third quarter, stock markets struggled to maintain the pace of growth set in the first two quarters. Our outlook now sees the global economy being at an important inflection point as underlying signals we monitor are pointing to diverging trends.
Over the last few months, stock markets struggled to maintain the pace of growth set in the first two quarters of 2019. The MSCI All Country World Index was basically unchanged in the quarter and yet it remains up over 15% since the beginning of the year. Meanwhile, bonds benefitted from a further decline in yields throughout the quarter.
Our outlook now sees the global economy being at an important inflection point as underlying signals we monitor are pointing to diverging trends. On the one hand, incoming economic data and expectations regarding future growth have deteriorated, indicating that we may be closer to the end of the business cycle. However, trends in inflation and various capital market indicators indicate that financial conditions remain accommodative with room for further support from both monetary and fiscal policy globally. At the same time, we continue to see few signs of economic imbalance that typically lead to recessionary conditions and our base case remains that the global economy will avoid a sharp downturn entering into next year.
Looking more closely, we continue to favour both North American stocks and currencies relative to International developed markets and Emerging Markets at this time. It will be particularly important to monitor economic expectations in the regions and geopolitical concerns such as Brexit and the US-China trade dispute for signs of improvement which could signal an opportunity to rotate into these regions over the coming months. The prospects for an economic upturn are highest out of China due to the lagged impact of policy decisions in the region over the past 18 months, which in turn may benefit economies in the Eurozone and other Emerging Markets.
In the meantime, our overall current stance remains cautious on risk assets as we prefer to see further signs of stabilization in the business cycle prior to taking a more optimistic stance. The good news for investors is that these conditions may materialize over the coming months as some of the headwinds due to the global economy recede.