Twin stock and bond rally probably nearing an end

The strong performance of both equities and government bonds this year reflects a view that monetary easing will put the global economy back on track very soon – an outlook that seems too benign to us. Central banks around the world are likely to loosen further, keeping sovereign yields very low. But we doubt that will bring about a clear economic improvement as quickly as investors hope. With that in mind, we think that corporate earnings will fall well short of expectations later in 2019, hitting equities and corporate bonds. The best-performing currencies in this environment are likely to be havens like the US dollar and Japanese yen.