over 4 years ago • 3 mins
We’re on the home straight of the year, so – to avoid any surprises – it’s worth taking stock of what to expect from, er, stocks in the fourth quarter of 2019.
This time last year was the beginning of the end for 2018’s US stock market gains: an almost 20% decline meant American share prices closed the year lower than they were at the start. One reason for investors’ skittishness was the US Federal Reserve (the Fed): investors worried it’d continue raising interest rates, thereby slowing earnings and economic growth. And the Fed’s at the center of 2019’s fourth quarter too. You know what they say: history doesn’t repeat itself but it rhymes...
The US stock market’s risen about 20% so far this year, but global economic growth’s expected to be lower in the second half of the year than in the first – and lower still next year. And since there’s no smoke without fire, investors are expecting sirens to start blaring any moment. Last quarter, central banks around the world made the most interest rate cuts since the financial crisis over a decade ago, and analysts think that trend is set to continue this quarter. The Fed, according to Saxo Markets, is actively “trying to ease financial conditions" and "limit declines in the stock market". And the European Central Bank (ECB) has resumed quantitative easing aiming to boost spending, and therefore economic growth, in the eurozone.
BlackRock, the world’s largest investment manager, thinks the quarter will hinge on geopolitics more than on central banks. Higher tariffs caused by a worsening trade war – and the subsequent decline in demand for goods – could still drag on the economy and company earnings. Not to mention recent Middle Eastern threats to the global supply of oil and an ever-looming Brexit…
Swiss investment manager GAM thinks declines in US companies’ third-quarter earnings could catalyze investors into selling stocks this quarter, and so reckons they’re best avoided. But it also acknowledges investors would be wrong to steer clear if the US-China trade war is quickly resolved, or if central banks do even more to stimulate the global economy than is expected. For now though, GAM’s recommending defensive stocks – for which growth is predictable – and short-term, low-risk bonds.
Economy-boosting measures from central banks like the Fed and ECB also push up the prices of riskier assets. And with further rate cuts likely this year, some investors think central banks are stringing up a new safety net under risky assets. Even if Saxo’s right and company earnings do fall, an investor might not sell their stocks if governments and central banks are effectively limiting their losses – for now at least.
Clearly Pacific Gas and Electric Corporation doesn’t like poetry. Rather than rhyme, history repeated itself last week when the company shut off power to thousands of Californians, blaming – you guessed it – the risk of wildfires. And things went from bad to worse for PG&E: it’s lost control of its own bankruptcy proceedings which means the company’s bondholders may soon take over.
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