Winter 2019: Global stock markets rally to end the quarter and the decade

February 7, 2020

Global markets rallied in the fourth quarter supported by signs of stabilization in the global business cycle and improving sentiment towards the U.S.-China trade dispute and Brexit.

Stock markets rallied globally in the fourth quarter, supported by signs of stabilization in the global business cycle, combined with positive sentiment towards the U.S.-China trade dispute and Brexit. The MSCI All Country World Index was up over 7 percent in the quarter and 23 percent for 2019, representing a material rebound from the lows of 2018. Despite the reprieve in political risks emanating from the U.S., China and the UK, some of the trends we identified in the latter half of 2019 continue to be prominent entering into 2020. We still see economic growth for the year being weaker than most years over the last decade, and although we have seen some stabilization in the business cycle, we do not anticipate a strong upturn like we saw in 2017 and 2018. At the same time, trends in inflation and various capital market indicators continue to indicate that financial conditions remain accommodative. Looking more closely, although we continue to favour both North American stocks and currencies, we did rotate into assets in international developed markets over the last quarter. Weakness continues to be most prominent in the Eurozone as both the U.S. And China saw stabilization in the fourth quarter. The good news is that some leading measures of economic growth in the eurozone improved towards the end of the year, which may bode well for the region. With prospects for all three key regions of the global economy improving modestly, conditions remain in place for gains in stock markets. Tempering this view is the outlook for corporate profits. Although stock markets rallied significantly in 2019, earnings growth stalled along with the manufacturing and trade cycle globally. Entering 2020, growth is stabilizing. Interest rates remain low and stable. And wage inflation is contained. This will need to flow through to better earnings to sustain the rally.
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