Monthly Market Report - January 2019

1st January 2019

As we head into the festive break again, it’s tempting to think (again) that we’ve had another exceptional year. In truth we haven’t. As we’ll examine in this report, market volatility has simply returned to something approaching an average. We also haven’t seen a proper sell off in either equities or bonds. This reflects the basic truth that the global economy is in reasonably good shape, with a small slowdown in Europe and a catching of breath in China. As we knew this time last year, the central banks – and especially the US Federal Reserve – are still keen to increase interest rates and normalise balance sheets. And Brexit is still chugging along towards a mysterious destination. So, in sum, I would say 2018 has been a fairly ordinary year.

But I would go further in my refusal to succumb to the prevalent gloomy consensus about the near term. I believe it is more than remotely possible – in fact possible, bordering on probable – that we may have a lesser spotted ‘melt up’ (a return of bullishness) before the inevitable ‘Big One’ – when markets properly lunge into crisis. My gentle near term optimism is based on the fact that the US Fed will want to slow down the pace of rate rises and that politicians the world over will want to keep up the positive momentum in the global economy. Lower oil prices might even help the developing world. To be sure, this melt up will probably be followed by a much bigger meltdown – a proper sell off. Nevertheless, overall though I think there is a strong chance that we could be in for one last hurrah.

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