Goodbye 2019, and our guide for 2020 in global equities
Head of Equity Strategy
Summary: The return in global equities have been much higher than even the wildest fantasies of market participants back in early January. Significant positive impulses from central banks and commitments of fiscal spending seem to have stopped the bleeding with global leading indicators suggesting the global economy moved into the recovery phase in October. What does that mean for equities in 2020? We also talk about the signs of rising inflation expectations and how this should be played in global equities.
With less than two weeks to New Year we are leaving 2019 with a feeling of bewilderment and a sense of “can this really continue?”, as the year shaped up very differently from what we expected a year ago. In early January before Powell’s famous U-turn consensus was that the Fed had made a gigantic policy mistake hiking the rate in December 2018 paying no attention to signals coming from financial markets. What endured was the second worst December for US equities since 1927. The Fed’s U-turn and subsequently easing of monetary policy followed by the majority of the world’s central banks lifted sentiment and equities erased the Q4 2018 losses by April 2019.
Since then the US-China trade war hamster wheel turned multiple times causing markets to be driven by tweets and trade news headlines frustrating market participants. During the second half of the year many countries (South Korea, Japan, Netherlands etc.) planned higher fiscal spending in 2020. The combination of stimulus from central banks and governments extended the momentum in global equities despite falling profit growth, which is currently negative for emerging market companies, and as of yesterday the NASDAQ 100 is up staggering 39.5% on a total return basis. In this impressive rally for the technology sector lies also the culprit to the short-lived outperformance of value stocks that occurred during the year. In a low rates and growth environment technology companies with monopolistic power is the preferred segment. But this trend could easily be challenged as we will see in our guide for 2020.
One of the interesting developments the past month is the steepening of the US yield curve (10-2Y) reaching the highest levels observed in 2019. The rise in the yield curve can be decomposed into multiple parts where one of them is inflation expectations and this factor observed through break-even rates is clearly a major explanation. Our head of commodity strategy, Ole S. Hansen, has lately talked about food inflation is also coming to live across many food categories. What are the implications for investors if inflation is finally picking up?
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.