Market Review: “With the Fed Around, Uncertainty is Certain”
While there were a litany of downside risks facing markets this year, the dovish stance (and, ultimately,
action) of global central banks overwhelmed any temporary disruptions, with equity markets
responding in Pavlovian fashion to the mere suggestion of monetary accommodation. Looking back,
it would have been a stretch to have predicted a year of over 30% returns for equities and nearly 9%
for fixed income, knowing the myriad risks and policy uncertainty. The list of headline risks included
heightened U.S.-China trade tensions, the longest U.S. auto workers’ strike in 50 years (at General
Motors), repo market funding pressures, a U.S. presidential impeachment, ongoing Brexit rancor,
and a Venezuelan default. Trade effects were outsized in 2019, as the direction of talks – and ensuing
market reaction – seemed to shift constantly and influence, particularly, stock market ups and downs.
However, the general trend tilted positive late in the year as trade negotiations picked up and nearterm
uncertainty came down. Not surprisingly, businesses remained skeptical in this environment,
evidenced by sharp declines in survey-based measures of expectations, confidence, and spending
decisions. Still, the dominating theme of the fourth quarter (and all of 2019) was that of central bank
accommodation, leading to a sharp rise in net asset purchases which, having reached a post-crisis low
of $77 billion earlier this year, are estimated to grow by over $1 trillion by September 2020...
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