Credit Cover Photo. Joseph Chan – Unsplash.com
As we predicted, 2018 was a year of turning points : turning points in inflation, monetary policies and equity markets.
We were amongst the few to predict the end of the secular bull market in US equities and 2018 ended-up being the worst year in equities since the 2008 financial crisis.
THE FOUR MEGA TRENDS
The world seems chaotic and unpredictable.
It is a time of changes and the world we are living in is going through major structural changes. We call them MEGA TRENDS
Understanding those mega-trends is paramount to proper investment positioning as they provide the backbone of the scenarios that will unfold in the years to come.
TRADE WARS, THE TRUMP METHOD AND LIQUIDITY
Equity Markets rose sharply last week as economic indicators and the heightened trade war led investors to conclude that the world economy would slow down marginally in the next six months while the ongoing trade wars would only have a limited systemic impact.
As our readers know, we had been anticipating a break-down in the US equity market as liquidity conditions were tightening but the behavior of the bond market and the flat-to-inverted yield curve is creating an environment of marginally negative real interest rates that remains supportive of equities for now.
In other words, liquidity is clearly prevailing over trade wars for now, and the correction of the first half of the year may be over.
From a fundamental standpoint, what it really means is that as long as bond markets do not break down or the yield curve slope up sharply, monetary conditions will remain. favorable to global equities and emerging markets in particular.