2018 Is Officially "The Worst Year On Record" With 93% Of All Assets Down
Putting these two extreme years in context, since 1901 the average has been that 29% of assets finish a given year with a negative total return, leading Deutsche to exclaim that it's been "an amazing couple of years nonetheless as we swing from one extreme to the other. It's perhaps not a surprise that in this time major DM central banks have moved from peak global QE to widespread QT."
Picking up on this theme, Morgan Stanley recently also noted that 2018 was a "historically bad year", pointing out that every asset class - except for cash - is down, and adding that "if one is looking for a reason why it’s been hard to be a multi-asset investor this year, look no further; there’s been no place to hide."
That said, Reid - who is traditionally is quite bearish - looks ahead with some hope, and the expectation that the market has priced in a little bit too much of the bad news:
We think 2019 will again be difficult for the same reasons we thought 2018 would be, but believe that, in the short term, markets have overreacted and gone too far too quickly.
Whether a downturn materialises or not after the end of next year, markets could price it in increasingly as 2019 develops, which would be a problem. However, nothing is preordained and perhaps the most likely way this cycle could be extended for longer is via a policy error from the Fed (not tightening into higher inflation) or if inflation genuinely rolls over here. If they end up not raising rates in 2019 for either reason then this could steepen curves, help risk, and prolong the cycle. So all to play for still. Nothing is set in stone
For the sake of all the bulls out there, he better be right.