What You Need to Know

A turbulent fourth quarter unsettled many investors, but are things as bad as markets have made them seem of late? In the 1st Quarter Capital Markets Outlook, we explain why we still expect solid growth in the coming year and how investors should think about the markets as we enter the late stage of the market cycle.

US unemployment rate

Historical 24-month

forward returns on a credit barbell strategy when the yield curve is at its current slope

Median debt

of S&P 500 companies as a % of equity

Despite a rocky fourth quarter in the capital markets, strong employment trends and rising wages make it seem unlikely that a recession is imminent. We believe growth will be solid in 2019, if slightly lower than in 2018. That said, we are watching key indicators for signs that economic fundamentals are deteriorating and believe investors should position for the late stage of the market cycle. For fixed-income investors, that means continuing to balance rates and credit with a barbell approach, which has historically outperformed in a late-cycle environment. Equities investors should continue to look for companies with strong balance sheets, which are less vulnerable to rising rates, and consider downside protection in an environment of lower returns and higher volatility.

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