December 2018: Falling growth & headline risk

Market Notes


The fourth quarter of 2018 seems to be a repeat of what occurred earlier in the year. What’s driving this uncertainty, and where are the opportunities? Here are some of our notes on what’s happening, and what we are watching.


We are data-focused in our methodology, and follow economic indicators to develop and confirm our views. Currently, the data is indicating that economic growth is likely to peak this year, and then fall over the next two years.

us indicators

Within the United States, new orders accelerated in November, driven by businesses bringing forward their purchases to avoid a potential 25% tariff. While new orders are generally seen as a leading economic indicator, analysts see this as a “one time hit” and business confidence has fallen due to skepticism in the sustainability of new orders. Q4 GDP growth is expected to range between 2.5% to 2.7%, which implies an annual growth rate of over 3.1% for 2018.

Global indicators

Overseas, manufacturing and services have both seen new orders weaken in November. From a manufacturing standpoint, the US and Japan outperformed the Eurozone and UK, though activity in China continues to fall. Services’ new business grew at the slowest pace in over a year and a half. The cooldown in global growth has already hit oil prices, and continues to impact equity markets.


Speaking of equity markets, all major stock market indices are down from September’s levels. Quarter-to-date, we are in correction territory, and investors are on edge for signs of a potential bear market.

Orange: Thomson Reuters Global Equity Index Green: Nasdaq Composite Index Purple: S&P 500 Index

Orange: Thomson Reuters Global Equity Index
Green: Nasdaq Composite Index
Purple: S&P 500 Index


Here’s what we think:

  • A decline in economic activity could mean further declines in stock prices, as estimates for revenues and EPS would need to be revised downward.

  • Markets currently seem to be especially sensitive to headline risk, and there is fear in the market. This could present price dislocations.

  • Sectors less sensitive to the business cycle continue to look attractive from both a relative performance standpoint and in the face of cooling global growth.

  • Differentials in economic expectations between countries are revealing potential opportunities. We are watching Canada, Sweden, South Africa, and Turkey.