What Is Driving the Change In Investor Sentiment?

Bill Norris
February 27, 2019

The rebound in risk assets since the end of December has investors wondering if the recovery in markets has moved too quickly and scratching their heads to figure out what has changed.

It has been roughly two months since the S&P 500 Index fell slightly more than 19% between September 20 and December 24, 2018, during which time the concerns around the potential for a global recession were getting stronger.

As we know all too well, investor sentiment has a tendency to change quickly, and that is what has happened since the beginning of the year, helping to boost the S&P 500 over 18% between December 24, 2018 and February 15, 2019. Investor optimism has improved not only in the U.S., but also outside the U.S. and we are seeing major indices in both Europe and Asia move higher from their late-2018 lows.

So what has changed? Well for one, the realization that the U.S. economy remains stable and growing has helped to quell recession fears, while the pivot by the Federal Open Market Committee voting members—from a hawkish to a more dovish stance—has also helped a great deal, as the potential for continued rate hikes appears to be on hold for now. Also, the growing optimism that some form of a trade agreement could be reached soon between the U.S. and China, results in a more constructive view on risk assets.

CIBC Private Wealth Management has been consistent in our views around the stability of the economic backdrop in the U.S., which continues to impress, especially in the labor market. In January, the U.S. economy created more than 300,000 new nonfarm jobs, representing the highest monthly gain since February of 2018. We now have had 100 consecutive months of positive gains in nonfarm payroll employment.

We are also still seeing positive indicators broadly across the labor market, as well as in business and consumer sentiment indicators. Some recent economic survey data has softened a bit, but that is to be expected considering the drawdown in markets in Q4 2018, and lack of progress around the trade talks during that time.

Looking Ahead: 2019 Investment Themes

Given the improvement in investor sentiment, which has led to an improvement in markets, it is always good to take a step back and re-assess our view for 2019, which we feel is still intact. To read our Investment Team’s full report, click the button below:

Read the Report

Bill Norris is chief investment officer and head of asset management for CIBC Bank USA. In this role, he oversees investment management, trust and estate services to individual and institutional clients of CIBC Bank USA. Bill also serves as a member of CIBC Private Wealth Management’s Asset Allocation Committee.