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INVESTMENT STRATEGY QUARTERLY

Letter from the Chief Investment Officer

Reckoning with Records

Despite numerous headwinds, 2019 is gearing up to be a celebratory year with record-breaking achievements on
many financial and economic fronts. In particular, in the United States we just toasted the S&P 500 as it cele-
brated the ten-year anniversary of the secular bull market in March.

Following last December’s worst equity performance since 1933, Despite the slowing ascent of equities, with intermittent periods of
concerns of an impending recession, tightening monetary policy, downward pressure, we remain unwavering in our expectation of a
and a trade war with China were muted, allowing risk assets to higher equity market by year end. In the United States, Jeff Saut
recover from the 24 December lows. sees earnings expanding in the second half of the year. The average
American stock is still expected to post positive earnings growth for
The U.S. economy and various financial markets are poised to both the quarter and the year, a better barometer of the health of
achieve historic milestones, some set to take place in the corporate earnings.
upcoming quarter. Consensus from the Raymond James
Investment Strategy Committee is that markets remain Looking at the U.K. and Europe, Chris Bailey believes that the
favourable, especially for investors maintaining a long-term time Brexit debate is likely to edge towards a sensible compromise
horizon. However, given the speed and magnitude of the first that will avoid a 'no-deal' scenario. Meanwhile, this May's
quarter rebound, the path ahead is likely to remain challenging. European Parliamentary elections will see populist parties make
further gains although not take control.
The U.S. is the beacon of the global economy, with positive
growth expected for the year. 2019 growth is expected to be 1.9%, Looking at emerging market equities, the recent rally is likely to
according to Dr. Scott Brown. Should the expansion continue continue, especially if a U.S.-China trade compromise comes to
past June, it will be the longest economic expansion on record. fruition. China is attempting to stimulate its economy via
pro-growth monetary and fiscal stimulus with the budget deficit
Robust job growth, healthy consumer spending, elevated challenging record highs of 4% of GDP. While the U.S. dollar bull
business and consumer confidence, and fiscal stimulus support market run has reached a record duration, celebrating its
our positive view. A “patient”, flexible Fed leads us to assign a 25% 11-year anniversary, the rally is likely to see a period of
probability of a recession in the U.S. over the next twelve months. consolidation. More tempered Fed policy and fewer “upside”
In fact, April could “legendise” the Fed for navigating the surprises to U.S. economic growth forecasts are a recipe for a
longest tightening cycle ever engineered without causing a pause in dollar growth. Stabilisation of the dollar is positive for all
recession.
non-U.S. equities.
Dr. Scott Brown recently reported that the Fed is on hold for the Despite healthy U.S. economic growth, record national debt, and
foreseeable future, reflecting signs of slower-than-expected a gradual reduction in the Fed’s balance sheet, the 10-year U.S.
growth and downside risks. The Fed funds futures are pricing in Treasury yield remains well below 3%. Nick Goetze expects rates
some chance of a rate cut by the end of the year.
to be capped through the end of the calendar year at 3%, due, in
Our expectation of a trade agreement between the U.S. and part, to the wide disparity between domestic yields and developed
China should supplement growth globally as trade uncertainty world sovereign debt creating very strong global demand at
fades. In the absence of an agreement, a softening global current levels and the lack of inflationary expectations. If we see a
economy, that currently shows signs of strain, has the potential normalisation of global interest rates relative to those in the
to spill over to the U.S. United States and an uptick in inflationary expectations,

Investment Strategy Quarterly is intended to communicate current economic and capital market information along with the informed perspectives of our investment professionals.
You may contact your wealth manager to discuss the content of this publication in the context of your own unique circumstances. Published April 2019. Material prepared by
Raymond James as a resource for wealth managers.

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