Macro monthly Something familiar

Will the history of late 2015/early 2016 repeat itself this year? Read our analysis as we dive deep into the two periods.

04 Jan 2019


  • The market and economic environment is reminiscent of the late 2015 and early 2016 period.
  • The global economy is in better shape this time around and equity valuations more attractive, but tighter policy and geopolitical tensions are headwinds.
  • Three years ago, a one-two punch of a less hawkish Fed and China stimulus catalyzed a quick rebound in risk assets toward their highs.
  • We expect policymakers on both sides of the Pacific to once again provide support for risk assets in 2019, but policy constraints may limit the effectiveness compared to 2015/16.

There is something familiar in recent price action. The market and economic environment is reminiscent of the late 2015 and early 2016. This Macro Monthly compares the macro backdrop policy dynamics and valuations over the two periods and discusses implications for asset allocation.

The macro backdrop

A useful starting point is to see where the global economy stands versus three years ago. Put simply, the economy is looking a lot healthier than it was back then:



3 years ago

3 years ago




Global composite Purchasing Manager Indices (PMIs) levels

3 years ago

Global PMIs had declined sharply and the emerging markets turned below the key 50 level separating expansion and contraction.


PMIs remain comfortably in expansion territory


Nominal export growth

3 years ago

Had turn negative in 2014 for large economies


Currently nominal growth in positive territory



3 years ago

Nominal GDP growth near crisis lows


While China’s economy is slowing, its nominal GDP growth is higher than 3 years ago

China nominal GDP (YoY)

Source: UBS Asset Management, Macrobond as of 26 December 2018

The policy backdrop

  • Three years ago, a one-two punch of a less hawkish Fed and China stimulus catalyzed a quick rebound in risk assets toward their highs.
  • We expect policymakers on both sides of the Pacific to once again provide support for risk assets in 2019, but policy constraints may limit the effectiveness compared to 2015/16.
    • For now, China’s policymakers seem intent on avoiding the boom-bust periods of recent years and have maintained a strategic structural goal of de-leveraging.
    • And like China’s policymakers, the Fed may find itself more constrained in its ability to take its foot firmly off the brake as it did in 2016.


One important consideration is that a lot of this negativity is already in the price of major equity indexes. Even assuming a conservative S&P 500 earnings growth estimate of 5% in 2019, the next twelve-month P/E ratio is one standard deviation below its average since 1990, as shown below. This compares to a P/E ratio just at average when markets bottomed in early 2016. That this economic expansion is three years older, discount rates higher and geopolitical tensions stronger will likely limit a return of the multiple to the top of the recent range. But even a move towards early 2016 levels implies healthy returns for equities in 2019.

S&P 500 P/E ratio (Next 12 months)

Source: Bloomberg, Evercore ISI As of December 26, 2018.

The bottom line: Asset allocation

As was the case in early 2016, we expect that the twin policy response of a Fed pause and Chinese stimulus is likely to provide support for risk assets in 1H 2019. But overarching policy objectives and economic conditions facing both sets of policymakers will likely prevent as swift a rebound as that witnessed three years ago. Concerns about cycle length and ongoing geopolitical uncertainties should also keep volatility elevated and the path to higher returns bumpy.

The combination of a less hawkish Fed and Chinese stimulus should have clearer effects on the US dollar, which we expect to weaken over the course of 2019. This has made us more constructive on emerging market equities and debt, which we expect to outperform. Indeed, it is notable that EM equities and debt outperformed US equities and credit respectively during the Q4 selloff, suggesting a lot of negative news for EM indexes was already in the price. At current valuations we find global equities attractive, but maintain an underweight in US credit to hedge against further disruption in risk assets.

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