Five wild cards for fixed income in 2019

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A few “wildcards” hold the key to returns in 2019

Policy reversals relative to expectations drove much of the unique pattern of returns in 2018. From trade to the Fed, fiscal policy and global growth, asset returns which surged in 2017, slumped in 2018, for some hastening a new bear market. Whether such a dire outlook proves correct in our view hinges on the key policy responses by the Fed to financial conditions tightening and to President Donald Trump’s trade agenda. Slowing inflation and tightening financial conditions as growth cools account for much of the rationale behind the expected slowing in the Fed’s policy normalization path. But if the Fed pauses on account of slowing economic growth, that may be too late for investors. Trade disputes clearly top the list of risks to the outlook this year. This risk most clearly represents a “coin flip” for forecasting odds but also holds the key to easing investor anxiety.