Trade wars, international tariffs and certain political tweets are losing their shock values and 2019 will see the market fatiguing from geopolitical risks according to one investment firm.
Natixis Investment Managers have released its latest market outlook and chief market strategist David Lafferty has said the market will not spike as much in the coming year.
“As we move into 2019, we believe the volatility spikes of January–February and October–December 2018 have set a higher bar – a bar that largely reflects a more appropriate base level of market uncertainty moving forward,” he said.
In addition, Mr Lafferty said that the market would begin to show signs of geopolitical fatigue that would see the market move away from knee-jerk reactions.
“While investors have been thrown off balance by trade, tariffs, and tweets, we believe these events are starting to lose their shock value,” he said.
Mr Lafferty said he remained bearish but cautious heading into 2019 with certain areas that would dictate the market outcome.
Countries would continue to see modest growth said Mr Lafferty as a slowdown was inevitable due to accelerated growth in years prior.
“We see this slowdown as an inevitable deceleration from above-potential and unsustainable growth to more natural long-run levels. It does not, as yet, imply that a recession is imminent,” he said.
This slowdown in growth made US dollar gains less assured said Mr Lafferty but he did not predict that the dollar would plunge.
“More likely, it will remain range-bound while markets watch and wait to see who backpedals faster. For the first time in five years, we aren’t outright bullish on the USD,” he said.
The decelerating global growth would also have an impact on US rates which Mr Lafferty predicted would be driven lower.
“While we don’t think rates will plunge, for the first time in many years we don’t see a big risk to bonds from a jump in yields.
“We aren’t afraid of a little duration risk and we don’t hate the return profile of high-quality bonds anymore,” he said.
Overall Mr Lafferty said that 2019 was a good time for investors to review and reposition their portfolios as the market was unlikely to sway too much.
“For the first time in several years, we aren’t predicting a dramatic rise in volatility levels moving forward. That’s the good news. The bad news? Current levels of volatility can still shake investor confidence.”