Global share markets will continue to struggle this year as stocks will likely plunge in the same vein as last December, Principal Global Investors' Bob Baur said.
The chief global economist advised the audience at this morning's Financial Standard Chief Economists Forum not to anticipate buoyant returns that lasted from 2009 to the beginning of 2018.
The huge stock market rally is simply an extension of monetary policy, he said.
Because interest rates have been suppressed by central banks for some time, earnings were calculated at low discount rates thus pushing present values and ultimately stocks higher, Baur explained.
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Investors therefore have to adjust to a new monetary environment as central banks withdraw liquidity.
The good and the bad news, Baur said, is that 2019 will be a "year of two halves."
Share markets will struggle on one side, while the US economy will prosper.
The US labour force is in "terrific" shape and wage growth is accelerating, especially for low-wage employees whose pay are growing at 4% (minus 2% for inflation).
That means standards of living and inflation-adjusted income are rising at a rate they have not been in a long time, he said.
Baur sees low-wage earners influencing the fact that "globalisation is fading."
Hundreds of millions of low-wage workers are being brought into the economy and they compete with the other middle-class workers in the UK, US, Europe and Japan, he said.
That competition is going to go away and middle-class wages may indeed be the next bull market, Baur said.
Further, Baur forecasted the current state of the economy to be the longest expansion in US history and will continue longer than people expect.
As for the Fed, will it raise short-term interest rates?
"It's none and done for the year," he said.