Terry Tang, Investment Advisor
January 15, 2019It has been a roller coaster ride for global markets in 2018.
S&P 500 Index rose to an all-time high at 2,940 points in September before selling off more than 400 points in the following months. The TSX Composite Index shared a similar fate, fell from an all-time high of 16,586 points down to 14,323 points by the end of December. Investors are already worrying that the 10-year long global bull market run has finally lost its steam, reaching the late stage of the economic cycle.
While most recent economic data for U.S. and Canada remain strong - unemployment rate in Canada dropped to 5.4 percent in November, the lowest in more than four decades, stock markets are leading indicators, in other words always forward-looking, and the across-the-board selloff in the global markets as well as the flattening of the Treasury yield curve, signals concerns about the prospects for the global economy, which we anticipate that the global market volatility will continue throughout 2019.
Trade Wars Looming Large
The U.S.-China trade tensions have dominated the headlines and is one of the key drivers of volatility in the global markets. The Hang Seng Composite Index hit hard since the exchange of fire in the form of tariffs between the two world’s largest economies, down more than 15 percent from the peak in about a year ago. From tariffs to the arrest of Huawei’s CFO, certainly there is no sign of trade tensions cooling off any time soon and it will continue to haunt the markets.
More Rate Hikes Ahead
Last December, the Fed took the target range for its benchmark funds rate from 2.25 percent to 2.5 percent, putting pressure on the markets. The Central bank officials signaled a flexible, or data-dependent rate path of normalization, and forecasted at least two more rate hikes for 2019. North of the border, Bank of Canada signaled that a gradual rate hikes will continue, lifting current overnight rate of 1.75 percent to the range of 2.5 to 3.5 percent, which they believe it is a goldilock zone that neither stimulates nor slows growth.
The views and opinions expressed are those of the author and may not necessarily be those of Aligned Capital Partners Inc. The content is for informational purposes only and not meant to be personalized investment advice.