2019 Investing Themes: Global Trade, Banks & More | ETF Trends

Each year, ETFtrends.com conducts a comprehensive review of the macroeconomic trends, policies and financial market themes that will dominate the next 12 months. Here, we introduce the overarching investment topics that are poised to shape the financial markets in 2019 and beyond.

For ETF investors, 2019 will largely be dictated by several major themes, including:

  • A spotlight on global trade
  • Global central banks’ significant shift toward monetary easing
  • Momentum driven trends in a late business cycle
  • Low risk-adjusted returns across major asset classes
  • Renewed interest for bonds and yield-generating assets

A Spotlight on Global Trade

What was once thought to be a small tiff between major trading partners, the U.S.-China trade war has been prolonged, with both sides firing off new rounds, and no quick end is expected any time soon. Consequently, the markets will likely continue to oscillate in response to positive and negative developments in a lengthy trade negotiation.

In the mean time, assets associated to global trade, notably U.S. companies with high exposure to foreign revenue and developing economies that rely heavily on export industries, will continue to come under pressure with the specter of trade war lingering over head.

Global Central Banks’ Significant Shift Toward Monetary Easing

As a response to the increased risks and potentially muted growth ahead, central banks have shifted away from a hawkish monetary policy to a more dovish outlook. Among the latest to change its tune, the Federal Reserve cut interest rates for the first time in over a decade, and many believe the central bank has more room to cut ahead.

With global central banks loosening their monetary policies to further promote growth, the easing could help extend the long expansion and support risk assets ahead. Consequently, we may find ongoing support for equities against a backdrop of reasonable valuations.

Momentum Driven Driven Trends in a Late Business Cycle

During a late business cycle, economic activity has peaked, implying a rate of growth that remains positive but slows down. Consequently, investors may be more prone to chase after areas of the market that are pulling ahead from the rest of the pack.

Investors would do well to look into high-quality, low-risk and momentum company stocks during this phase of the business cycle. As rising inflationary pressures and tight labor markets crimp profit margins during this phase, more labor intensive sectors like consumer and industrials are more at risk, whereas companies with greater pricing power may stand out.

Low Risk-Adjusted Returns Across Major Asset Classes

The markets have made a huge rebound from their 2018 lows, with most areas priced to perfection. Consequently, any small disturbances could knock markets off their footing, and investors should brace for more period sell-offs that could impact overall returns.

Investors could diminish risk by raising more cash, but others have also shifted over to fixed-income assets to build portfolio resilience, even at these low yield levels.

Renewed Interest for Bonds and Yield-Generating Assets

In a period with increased risks and a low interest rate-risk outlook, more have shifted over to fixed-income assets. Government bonds have played a role in offsetting risk in the equities market, and other higher yielding debt securities have helped generate more attractive returns in a lower-for-longer yield environment where the Fed is looking at more interest rate cuts to offset growth concerns.

The Bottom Line

Now that we’ve introduced the major themes of 2019, you can take a look at our theme-specific content below, where we inform you of opportunities in these volatile markets.