2019 Outlook — What’s ahead amid slowing growth

12.20.18

The indicators tell us that the pace of global economic growth has peaked. Numerous factors are at play in slowing the expansion that followed the 2008 financial crisis: stricter monetary policy in many regions, the lagging effect of a series of U.S. interest rate increases coupled with the fading benefits of fiscal stimulus in the U.S. and the ongoing trade policy tumult introduced by the Trump Administration. These issues and other potential headwinds are likely to slow the pace of U.S. and global growth. What might it all mean for the markets and investors in 2019?


IVY VIEW
US map

U.S. gross domestic product grows around 2.5%, but faces headwinds

The U.S. economy looks to finish 2018 with the strongest growth rate since the Great Recession that began 10 years ago. Our optimism wanes somewhat in 2019 as we forecast U.S. GDP growth stabilizing around 2.5% with the possibility of further deceleration during the year.

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IVY VIEW
US China flags

There may be light at the end of the tunnel on U.S.-China trade relations

Recently, the U.S. and China agreed to postpone an escalation of the trade war, with both sides making concessions as negotiations between the world’s top two economies get underway. However, we believe a truce should not be expected until well into 2019.

However, there were signs of some progress on the U.S.-China trade disputes in the final weeks of 2018. Recently, President Donald Trump and Chinese President Xi Jinping agreed to postpone escalation of the trade war, with Trump agreeing to postpone the planned increase in tariff rates on Chinese goods while Xi agreed to increase imports of U.S. goods and begin a dialogue with the U.S. on key issues. While we believe it could be difficult to get a resolution by early 2019, we are more hopeful that there will be a truce later in the year as Trump focuses on improving the economic outlook ahead of the 2020 election.


IVY VIEW
upward arrow

Yield curve likely to stay flat; no appearance of recession on horizon

There has been increasing focus on the possibility of an inversion in the yield curve, which has been a precursor to every modern-era recession. We believe the yield curve will stay flat for the foreseeable future, with no downturn in the U.S. economy on the horizon.

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IVY VIEW
market volatility

Investigations and political upheaval could ratchet up market volatility

One wildcard for investors in 2019 is the ongoing political upheaval in Washington D.C. We anticipate numerous investigations into the Trump administration once the Democrat take control of the U.S. House of Representatives, likely sending new waves of volatility through the markets.

Another wildcard for investors in 2019 is the political upheaval in Washington D.C. The ongoing investigation by Special Prosecutor Robert Mueller into a range of issues that could touch President Trump may conclude in early 2019. There is increasing anticipation the Democrat-led U.S. House of Representatives will launch a number of investigations into the Trump Administration in the New Year, with even a possibility that some may call for impeachment hearings. It’s impossible to know where the various investigations and hearings may lead, but we do anticipate ripples through the economy and volatility in the markets should Beltway battles ratchet up.

Even though we believe that growth will be weaker in 2019, we are hopeful that the stage will be set for improvement at some point. The combination of a Fed pause, stimulus in China, and a truce in the trade war could set the stage for economic improvement later in 2019 and into 2020.


IVY VIEW
globe

Global gross domestic product growth rate cools to 3.4% in 2019

The global expansion we experienced in 2018 has become less synchronized, leading to varying growth rates in 2019 for different regions of the world. We forecast more modest global growth as a result, with GDP expanding 3.4% for the year.

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IVY VIEW
emerging sun

Emerging market regions face challenging, but brighter forecast

After multiple headwinds over the past year, emerging markets have a brighter, albeit challenging, forecast in 2019. Slowed U.S. Fed policy could ease pressures on local central banks, leading to a more supportive theme, but geopolitical issues and the trade war remain major threats to emerging markets growth.

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IVY VIEW
dollar

U.S. dollar softens, but benefits from relative economic strength

We believe the U.S. dollar will have a softer edge in 2019 due to fewer rate hikes and slower relative domestic GDP growth, but still has the relative strength of the U.S. economy as a tailwind.

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IVY VIEW
key

Lingering volatility presents opportunities for investments in quality asset classes and sectors


Volatility was the name of the game in 2018 as the global equity markets set record highs only to see those yearly gains erased. The sell off at the end of the year sent the equity indices into correction territory. Several forces conspired to create this environment, including macro events like the global trade slowdown and tightening monetary policy, as well as the staggering of the FAANG (Facebook, Apple, Amazon, Netflix and Google-parent Alphabet) stocks, which have been a major equities catalyst over the past couple of years.

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2019 Outlook — What’s ahead amid slowing growth

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Past performance is not a guarantee of future results.Risk factos: Investment return and principal value will fluctuate, and it is possible to lose money by investing. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Fixed income securities are subject to interest rate risk and, as such, the net asset value of a fixed income security may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in a Fund’s prospectus.

The opinions expressed are those of Ivy Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.