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Investors Lose on Bonds, Stocks for First Time Since Crisis

John Glover
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Investors Lose on Bonds, Stocks for First Time Since Crisis

(Bloomberg) -- Corporate bonds and stocks are to set hand out annual losses on both sides of the Atlantic for the first time since the global financial crisis a decade ago.

Fast-shifting narratives on interest rates and U.S.-China trade tensions have hit shares this year, while global credit is headed for the worst year in 10 as the withdrawal of central-bank stimulus increases focus on company-specific risks. It will be the first time since 2008 that buyers of stocks and credit both get negative returns, and only the second time since at least 1998, data compiled by Bloomberg show.

It seems fixed-income investors can’t catch a break, as government bonds also sink in the red this year. It’s been “a very unusual 2018 where likely we’re going to close out the year with negative returns in both fixed income and equities globally,” said Richard Turnill, global chief investment strategist at BlackRock Inc., said at a Dec. 11 briefing.

The assets’ simultaneous struggles underline the difficulties facing investors as central banks seek to exit years of ultra-loose monetary policy following the 2008 crisis. Euro-denominated corporate high-grade bonds have lost 1.3 percent year-to-date, the worst performance since 2008, Bloomberg Barclays’ Euro Aggregate Corporate Total Return Index data show. Stocks have fared even worse, with losses of 11 percent this year for the Stoxx 600 Europe Index.

Bleak Picture

It’s a similar story for the U.S. Excluding the 2008 global financial crisis, the last time investors were handed bond and stock losses was 1974 -- the year of President Richard Nixon’s resignation, runaway inflation, and the Rumble in the Jungle between George Foreman and Muhammad Ali.

In 2018, “there’s been a bit more concern in markets about mature cycles, earnings still good but being revised down and so on,” said Gabriel Sterne, head of global macro research at Oxford Economics in London. “That’s been the story of the year as a whole. There isn’t any single episode you can fit the narrative into.”

There could yet be more pain to come, as Europe’s economic recovery stalls and corporate earnings look challenged for next year. On top of that, the European Central Bank is calling time on its 2.6 trillion-euro ($2.9 trillion) bond-buying spree within a couple of weeks, through which it has amassed almost 180 billion euros of corporate bonds.

Adios ECB

The central bank has already started tapering company-bond purchases, buying 46.1 billion euros of the securities so far this year versus more than 80 billion euros in 2017 and more than 50 billion euros in the second half of 2016, when the program began, ECB data analyzed by Bloomberg show.“2018 saw the greatest reduction in the accumulation of central bank asset purchases in history,” said Jim Reid, global head of fundamental credit strategy at Deutsche Bank in London.

At the same time, asset management giant Pacific Investment Management Co. is among investors predicting U.S. economic growth will slow to less than 2 percent next year, in tandem with other developed-nation economies including the U.K. and the euro zone. This follows a hat-trick of U.S. Federal Reserve rate hikes this year, as stocks soared to a record in September before plunging.

“When you take stimulus off, it’s not clear what you’re left with,” said Jamie Murray, chief European economist at Bloomberg Economics. “In the euro zone, things look worse, unambiguously. You’ve got weakened near-term growth momentum and an increase in political risks. And in the U.S., who really knows what the underlying health of the economy is?”

--With assistance from Ksenia Galouchko and Paul Cohen.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Neil Denslow

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