Transcript- Winter 2018-2019 - Macroeconomic review

February 7, 2019 Jared D'Souza

Marija: [00:00:04] As we enter 2019, we think that the sell off experienced in the last quarter of 2018 was overdone and stocks should outperform bonds. Yes risks have risen. Financial market conditions tightened in the last quarter, but also low liquidity exacerbated the sell off. In addition, the tensions that were caused by the U.S.-China trade dispute elevated market risks, which really presents an opportunity for a rally, should those tensions ease going forward. But if we look at the fundamentals- earnings growth and economic growth are certainly supportive of the stock market in 2019. In terms of earnings, we expect growth to slow from the highs of 2018 but remain positive and robust across different sectors and countries globally. We see economic growth remaining positive in 2019, led by the U.S. and our indicators point to a low probability of a recession. Inflation is contained and now the Federal Reserve seems to be targeting a soft landing as they're nearing the end of the interest rate hiking cycle. Rising interest rates has been predominantly a North American story, and now we see across the yield curve - rates have either come in or stabilized which should be less restrictive for growth. On top of that both the Fed and Bank of Canada have indicated that they would be increasingly more data dependent going forward. Looking Internationally, China will be particularly important to the global economy as lagged effects of policy stimulus should be positive. Improvement in China should also lead to improvements in [the] eurozone which underperformed expectations in 2018 as it experienced a number of events such as Brexit, Italy and the French protests. So altogether that leaves us optimistic about stocks in 2019 with the U.S.-China trade dispute being one of the key risks that we will follow closely.

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