Let our views shed some light on real estate and credit markets in 2019.
Dimming Growth Does Not Mean A Recession is Near
The good news: While we see economic growth moderating in 2019, we aren’t invoking the “R” word just yet. But keep in mind, risks persist. Expect rising rates, slower growth, and trade-induced price pressures to hinder traditional portfolios.
How Economic Cues May Impact the Markets
May Impact Asset Valuations Across Markets
The Federal Reserve projects a higher median fed funds rate by mid-2019.1
May Stifle Equity Upside Late in the Cycle
By the end of 2019, GDP is forecast to moderate off its accelerated 2018 clip.2
May Push Prices Higher, Limiting Investment Growth
Price inflation is markedly higher than just two years ago as trade tensions rise.3
View Disclosure: 1Federal Reserve. Summary of Economic Projections. 12/19/18. 2Deutsche Bank. Forecasts may not come to pass, and are subject to change. 12/18.3Bureau of Labor Statistics. Producer Price Index for final demand, NSA. 12/18.
Looking at Risk-adjusted Returns to Define Value*
Bloomberg. Bloomberg mREIT Index (Mortgage REITs), Bloomberg Apartment REIT Index (Apartment), Bloomberg Industrial REIT Index (Industrial), Bloomberg REIT Regional Mall Index (Mall), Bloomberg Office REIT Index (Office). 12/31/17-12/31/18.
2019 Real Estate Outlook
Investors may forget that real estate has historically been a sound investment as market cycles end. In today’s environment, real estate’s supply-demand fundamentals support growth potential while helping mitigate looming market risks. You just have to know where to look.
Bloomberg. S&P LSTA Leveraged Loan Total Return Index (Senior Secured Loans), Barclays U.S. Aggregate Total Return Value Index (U.S. Corporate Bonds). 1/1/18-12/31/18.
2019 Credit Outlook
If Fed projections prove more accurate than market expectations, we could see higher interest rates through at least mid-2019. A carbon copy of 2018 would again turn the lights out on investment-grade bonds. See how to position fixed income to help solve for these risks.
The 1-year Sharpe Ratio is calculated as total return divided by volatility. Volatility is measured as standard deviation.
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