U.S. stocks are looking scary after their worst year in a decade. Credit is risky too. Volatility is back. For many, cash and short-term debt may be the best place to go.
As fund company executives, portfolio managers and strategists at some of the world’s biggest money managers turn to 2019, they’re cautioning that returns could be muted across asset classes. They’re also urging investors to be increasingly selective in the quest for value. Here’s a sampling of views.
Jurrien Timmer—Fidelity Investments, director of global macro
U.S. earnings growth will slow to 5 percent to 7 percent in 2019, the Fed may raise rates once or twice more, and the price-earnings ratio of the stock market will start the year at a reasonable point. Bonds look all right in this environment. Stocks should do better than they did in 2018. The best opportunity should be in emerging market stocks, which have lagged far behind their U.S. counterparts. “If you add it all up, it’s not a bad story for stocks -- maybe not double-digits, but better,” Timmer said in a Dec. 13 interview.
Rob Lovelace—Capital Group, vice chairman and equity portfolio manager
Watch out for device companies, such as Apple Inc., that are great until they stop being great because they lack product diversity. By contrast, Samsung Electronics Co. isn’t just devices and handsets but also creates other necessities, such as memory chips. Be a stock picker rather than buying the index. For example, there is groundbreaking work around the world in biotech and pharma companies in the area of cancer therapies and personalized treatments based on body chemistry. Rather than focus on specific companies, we invest in multiple companies in the sector, as one will have an amazing breakthrough and another will have a stage-three drug that fails.
Kristina Hooper—Invesco Ltd., chief global market strategist
Buy emerging-market equities, tech stocks, global dividend-paying stocks and alternative assets, such as real estate, private equity and commodities -- especially gold. Sell or decrease U.S. equities, consumer discretionary stocks in particular. “My base case is decelerating but solid growth globally, with the U.S. decelerating as well. I also expect tepid but positive global stock market returns. However, the ‘tails’ are getting fatter as risks, both positive and negative, increase. For example, a quick resolution of the trade war with China could push global growth higher and also push stock market returns higher -- especially if the Fed become significantly more dovish. Conversely, an escalation of the trade war with China could put downward pressure on global economic growth and likely push stock markets lower as well -- particularly if the Fed is less dovish,” she said in a Dec. 27 email.
Dan Ivascyn—Pacific Investment Management Co., group chief investment officer
Beware of rising volatility, widening credit spreads and a flattening yield curve that are indicating an economic downturn within 12 to 24 months. Increase cash positions now to await opportunities, such as wider spreads and overshooting to the downside in corporate debt. Potential opportunities are found in U.K. financials, after valuations sank amid fears about a chaotic Brexit, which Pimco believes is a low-probability event. “We are beginning to see a few select opportunities around credit, but we remain concerned about credit in general,” Ivascyn said in a Dec. 13 Bloomberg Radio interview.