This year the strength of the US economy relative to the rest of the world drove US interest rates and USD higher as Fed turned more hawkish than markets expected. This lead to large unwinding of stock positions.
But next year this divergence is likely to dissipate. The US economy’s outperformance
, this year, was largely due to the tax cut enacted in late 2017. This one-off boost (sugar high) has started to fade and US business focus has shifted from tax cuts to trade conflicts, specifically between US-China.

In the current environment, the US economy is slowing moderately while elsewhere, outside US, this picture is improving. This will be a reason for the Fed to be relatively more dovish and pause or slow down with the interest rates hiking given the current below 2% inflation in US. This should weaken the USD at least slightly. A slower trajectory of Fed tightening will help boost risk assets, particularly Emerging Markets and commodities (copper, gold bullion etc.).

In addition, investors should expect from Chinese leadership to release strong enough stimulus package and help diffuse the US-China trade conflicts so that its economy stays on a healthy growth path.

With the ongoing global expansion, corporate earnings should do well next year particularly at their currently discounted price levels. But this readjustment in global economy will likely continue to face bouts of volatility, warranting a low risk exposure so that capital can be reallocated when high volatility offers solid opportunities.