It looks like the market turbulence we saw at the end of last year and in early January was 'a reset' rather than 'Armageddon', according to Gary Potter, the co-head of the multi-manager team at BMO. And given the modest recovery we've seen in the last fortnight, it looks like Potter is right.
That's not to say that making money in 2019 will be easy though.
Potter told journalists at a briefing a week ago: 'we're moving into a new phase in markets. We've had ten years of QE, that is stopping. That is going to have an impact on asset prices, probably not to the upside. So it's going to be harder to make money across all markets as a general rule.'
He also said: 'higher risk strategies may not deliver higher returns. We may see a compression of returns because the world is slowing. Bonds may do better than you might think. Equities might be challenged because of all those concerns. It could be quite a compressed return environment.'
Potter and his team aren't ruling out a recession this year, but they don't think it's the most likely scenario. A global slowdown is more likely.
Central banks
Going back to QE, one of Potter's colleagues, Anthony Willis, made the point that central banks would like to tighten if they can: 'Central banks are very aware of imbalances that have been caused by this cheap money and they are wanting to be on a tightening path and they certainly started last year with a willingness to tighten.'
But, of course, the US Fed is now rowing back on the likelihood of multiple rate rises this year, so Willis says that 2019 will be a year when we all should keep a close eye on central banks. The banks' 'language will be key.'
Politics and populism
And central banks aren't the only potential headwind for markets this year. Politics and populism are another obvious worry, so it will probably pay to carefully watch further developments in the Trump/China situation.
Earnings
Earnings are another important issue. Willis pointed out that price/earnings ratios look reasonable in many markets, but that assumes the earnings forecasts for companies are robust. Earlier this month Apple's share price was hit badly by a profit warning and we could see this happen repeatedly.
'Any earnings disappointments will be hit savagely by the market.'
Potential boosters
Potter and Willis did, however, highlight some factors that might boost the economy and markets if they come through.
Firstly, an explicit statement from the Fed that there would be no more rate rises for some time would probably help markets. Secondly, a simmering down of the trade tensions between the US and China. And finally, signs of further fiscal stimulus in China would also be welcomed - in fact, stimulus moves announced this week have already moved markets up a little.
Favoured regions
Willis also mentioned the BMO team's favoured regions for equities investment this year: 'Asia, Ems and Japan remain our favoured regions. We don't like Europe particularly and still think the growth slowdown and the earnings slowdown may be underappreciated...we're underweight in the US. Although being underweight in the US hurt us more than any other region.'
Fixed income
Kelly Prior, investment manager at BMO, and also a fixed income expert, made some interesting comments on the bond market. I've been concerned for some time that the unwinding of QE would see bond prices fall and yields rise. Simply some big bond buyers - the major central banks - are disappearing from the market. But Prior wasn't so sure.
She pointed out that inflation is normally seen as the real killer for bond markets, and there is no sign of prices taking off soon. And that's in spite of the fact that job markets are tight in several leading economies, especially the US. Low unemployment often leads to inflation but not so far.
Prior also pointed out that the Bank of Japan is still buying bonds even if some other banks no longer are. So perhaps she's right when she says that the 'risk is to the downside' when we look at government bond yields. (I should say that she did add some caveats about how her current expectations might change.)
Prior was very clear on one point: 'bonds are getting quite interesting' after a tough period for fixed income investors.
What next?
If you're impressed by the BMO team's thoughts, you could look into investing in one or more of the BMO Multi-manager Navigator funds.
Alternatively, you could choose the ETF option. If you tempted to invest in fixed income, take a look at the iShares Core UK Gilts UCITS ETF (IGLT) as one way into UK government bonds or Gilts. For emerging markets or Japan, look at Four top emerging markets ETFs and Five top Japan ETFs.
