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In terms of initial impact, the COVID-19 pandemic may be the greatest economic shock in living memory. For markets, given the damage to date, we believe we may be closer to the end than the beginning of the downturn, and we are seeking to manage risk around the potential inflection point.
We anticipate positive economic growth and market returns in 2020, though moderate growth faces risks and equity returns are unlikely to match 2019 levels.
The economic cycle continued to mature in 2019, as U.S. consumption and manufacturing diverged. Headwinds from trade slowed growth abroad, but rising valuations powered strong market returns globally.
U.S. economic growth is likely to remain positive, but below trend, in the near-to-intermediate term, as consumer strength is partly offset by weakness in manufacturing industries. We anticipate continued market volatility in the face of a maturing U.S. economic cycle, economic weakness abroad, and geopolitical uncertainty.
Our outlook for the U.S. remains positive. However, slowing growth, progress already made this economic cycle, and a partially-inverted yield curve demand close attention. As this expansion continues to mature, we believe a mix of economically-sensitive and defensive exposures is appropriate for the environment ahead.
Strong equity returns in Q1 were largely a continuation of 2018’s volatility, but moderate economic growth should also continue. We see sector selectivity as increasingly important given this late-cycle backdrop.
Global capital markets saw a resurgence of volatility in 2018, as rising interest rates and geopolitical risks shook investor confidence. However, broad economic trends remained fairly stable, and the relative returns of various market segments in 2018 largely lined up with our macro outlook.
A range of concerns shook investor confidence and markets in 2018, yet broad economic trends point to continued moderate growth. Our market outlook remains positive, given the disparity between global economic fundamentals and sharply reduced equity valuations.
We see ongoing investment opportunities in the U.S., tied to its economic leadership. We also see new opportunities in Asia, where equity underperformance has shifted the region’s risk and return outlook. While markets always face uncertainties, economic and market fundamentals appear stable.
Prospects for a temporary reacceleration of economic growth in the U.S., and for continued trade tensions globally, do not change our fundamental view that the U.S. is on a favorable path of moderate economic growth while challenges remain abroad.