October 31, 2018

A correction, not a bear market (yet)

In Short

It is easy to get pessimistic considering the political and policy headwinds behind the nasty market correction in October. The Fed, trade war and Italy/EU standoff will keep volatility high. Fed normalization was always going to shock both volatility and the bond-stock correlation. We see the recent sell-off as yet another, if more severe, warning that there aren’t many places to hide at this stage of the cycle. But it is a correction, not the start of a bear market. Global growth isn’t crashing.

Market Perspectives
31/10/2018

Highlights:

It is easy to get pessimistic considering the political and policy headwinds behind the nasty market correction in October. The Fed, trade war and Italy/EU standoff will keep volatility high.
Fed normalization was always going to shock both volatility and the bond-stock correlation. We see the recent sell-off as yet another, if more severe, warning that there aren’t many places to hide at this stage of the cycle. But it is a correction, not the start of a bear market. Global growth isn’t crashing.
We remain positioned for a further rise in yields (more so in South Europe), still prefer cash and favor a moderate overexposure in ‘value’ equities.