Market performance has materially changed from late 2018, but have the facts?

Posted on 03/14/2019


This partner content is by MFS Investment Management.

by Robert M. Almeida, Jr. – Portfolio Manager and Global Investment Strategist

Hope is not an investment thesis
Investor pain in the final quarter of 2018 has seemingly faded from memory, based on the rerisking across global equity and credit markets in the first two months of 2019. This prompts the question: Were investors too pessimistic then or are they too optimistic now? To my mind, the answer is yes to both. The real answer is that the market suffers from recency bias — the tendency to remember recent events better than those that happened earlier — and it tends to get whipsawed by nonmaterial information. Have the facts materially changed since last quarter to cause such volatility? Let’s review.

Broadly speaking, there were three sources of hope that investors seemed to latch onto in the early months of 2019: a change in tone by central banks, particularly the US Federal Reserve, to a more dovish stance; hopes for a resolution of the US–China trade war; and an end to the longest government shutdown in US history.

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