by Connor Darrell CFA, Assistant Vice President – Head of Investments
The world’s major equity indices ended lower for the second consecutive week, with some uninspiring Chinese economic data and continued geopolitical uncertainty stemming from the Brexit negotiations weighing on investor sentiment. Some of that negative sentiment was outweighed by potential progress in the ongoing trade tensions between China and the United States, but it was not enough to push markets into positive territory. In fixed income, the closely watched spread between the 10-Year and 2-Year Treasury rates held firm at 16 bps. Thus far, high quality bonds have upheld their traditional role as equity diversifiers, producing positive returns amid the recent equity volatility.

A Look Ahead at 2019
In a meaningful deviation from the prior few years, uncertainty and volatility have played a much larger role in market returns during 2018, and we anticipate this will continue into 2019. Global economic growth is likely to slow modestly, led by a deceleration in the U.S. and continued softening in China and Europe. Geopolitical uncertainties will likely remain elevated, with the market’s focus primarily fixed upon potential spillovers from the Brexit negotiations, the U.S./China trade saga, and the potentially disruptive consequences of growing populism around the world.

Despite the change in tone, its important to note that a deeper look at the fundamentals of the U.S. economy still yields no major signs of overheating, and the probability of recession remains low. For that reason, it is likely too early to become overly defensive. History tells us that late-cycle investing, while occasionally tense, can be very rewarding. As in all stages of the cycle, the key for successful investing will be relying upon the benefits of diversification within a disciplined and structured process. A properly constructed financial plan is designed to weather all stages of the economic cycle, including periods where returns are more subdued.