Investors Can No Longer Run The Market Beta Higher

After the EU referendum in 2016, we only made one prediction: that nothing would happen until the very last moment, and that in between we would be subjected to a relentless barrage of spurious and nonsensical headlines.

So far, it has proven true. The global economy has simply marched on for two years until now. At the moment, the noisy headlines are now drowning out far more important issues. We are, once again, investing in interesting times. 

Global outlook 2019: Opportunities outside the UK

It is now well-documented that global economic growth is slowing and the idea of an earnings recession appears to be getting more and more tabloid space. The bond market believes it, with the inverting yield curve suggesting that we are in a late cycle phase, certainly if history is anything to go by. 

The rapid change in tone from the US Federal Reserve from higher rates in December to a pause in January testifies to increasing worries about Europe and China.  

We see the same with equities; analysts have continued to downgrade earnings estimates this season, with one firm's 'top-down model' predicting no growth for 2019, well below consensus expectations of a 7% gain.

We have also seen numerous tech firms downgrading guidance on the back of slower growth linked to China. On top of this, the rise of the internet of things, shifts in retail patterns and artificial intelligence continues to upset established markets.

Alternatives: Which assets should investors favour in 2019?

The partial US federal government shutdown is expected to have cost the US economy $11bn, of that the Congressional Budget Office estimates that $3bn in economic activity will be permanently lost.

US economic growth will slow to 2.3%, compared with the 3.1% rate last year, as the benefits of the tax law changes fade. 

Over the last few months, these issues have clouded the economic environment to such an extent they are of greater concern than the vast majority of Brexit dialogue.

We do believe over the coming weeks and months that many of these risks that have weighed on markets will begin to yield answers and provide a catalyst for a rally. 

We approach the end game in Europe, the US (at least with President Donald Trump trying to gain finance for his Mexican wall) and the China trade dispute.