Why was our “Solving for 2019” audience less worried about recession but more cautious on equities?

At our flagship annual conference for the EMEA region, “Solving for 2019,” it is now tradition for my colleague Joe Amato to ask the delegates when they think the next recession will hit, and for me to ask which will be the best-performing investment category over the coming 12 months.

Last week, in London, our clients and partners in attendance gave us an intriguing response.

In aggregate, our audience thought that a recession was further off than they did at this time last year. At the same time, they were considerably less bullish on equities and commodities than at the start of 2018. How do we square these positions?

Perhaps it had something to do with the audience’s view that inflation posed the greatest risk to markets in 2018, and that the cycle might end with an equity and commodity blow-out? Or maybe this year’s delegates were feeling bruised from the almost universal negative returns of 2018, and the equity market sell-off that brought it to a close?

At first, it was a puzzle. On reflection, however, the two votes probably reflected a growing recognition that we are in the mature stage of the business cycle—and that this is the most complex and challenging stage for managing an investment portfolio.

Wisdom

Last January, fully 26% of our audience anticipated a global recession in 2018. This year, only 8% expected a recession to hit in 2019.

Despite their gloomy economic outlook, 68% of last year’s delegates backed global equities to perform best in 2018 and another 25% went for commodities. Only 6% got it right by anticipating that cash would be king. Even fewer favored the fourth category of global fixed income.