We’re only 50 days into 2018, but it’s already been a tumultuous year for investors.
Volatility, after years of placid market moves, has returned with a vengeance, especially for stocks.
While they’ve dominated the headlines, it’s arguably been bonds and the US dollar which have truly been in the driving seat of market movements so far this year.
This simple chart from JP Morgan underlines that point.
It shows year-to-date returns for major asset classes as of Friday last week.
A couple of things stand out.
The first is that bonds — whether government or corporate — have been under pressure.
Signs that inflationary pressures are building as the global economy strengthens, along with mounting expectations that those trends will see major central banks continue to reduce monetary stimulus, have been a major factor.
Another has been growing concerns that higher US fiscal deficits will raise borrowing costs, especially over the longer-term.
The second major influence is partially linked to the first: the ongoing slide in the US dollar.
It’s continued to weaken, helping to boost assets that are denominated in US dollar terms, especially US and emerging market stocks which have also benefited from investors growing increasingly confident that the global economy is reflating.
However, with the euro and yen strengthening, the dollar weakness has weighed heavily on stocks elsewhere in the world, especially in Japan and Europe, leaving the MSCI World Index flat for the year.
Based on what’s been seen in early 2018, it looks like the dollar and bond markets will continue to influence broader asset markets, continuing the prevailing trend seen in previous years.