Embracing Some risk
Also Interesting
One element of successful investing is assessing how investor expectations may change over time. We began warning in mid-2018 of a growth slowdown in 2019, which we felt would be a disappointment to investors. This came to a head in the fourth quarter, as growth concerns led to a significant reduction in risk appetite and valuations. The resulting widening of credit spreads (as shown below) led to predictions that the credit markets were sniffing out an economic downturn. But we now think sentiment has swung too far in this direction; we don’t expect a recession in 2019. This negative sentiment shift improves the odds of an upside surprise over the next year, which we think improves the outlook for risk taking.
