Most of the events we anticipated in last year’s Outlook, including four interest rate hikes, an equity market correction and a partial yield curve inversion, have come to pass. Waning support from tax cuts and concerns about a late-cycle combination of rising inflation, tightening policy, and slower growth have caused significant stock market valuation adjustments and put the U.S. Federal Reserve’s hawkish stance in place since 2015 on the defensive. Consequently, risk of a policy mistake in 2019 is now relatively low; neither normalization of interest rates nor the pace of its balance sheet unwind will continue on autopilot. We expect at most one additional hike in 2019 before the Fed pauses for what could be an extended period. Accordingly, moderate expansion will continue this year, albeit at a slower pace. While we think it’s unlikely, easier monetary conditions are even possible by year end should economic conditions deteriorate. In this context, the stock market’s oversold condition raises the odds of a bullish tendency during the first half, while successful resolution of trade tensions with China and greater clarity around President Trump’s vulnerability to a Democratic House and the Mueller investigation should ignite a powerful rally in equities. Meanwhile, balance sheet health and intact confidence among small businesses and consumers bode well for Old Hill Partners’ asset based lending strategy and the attractive, uncorrelated risk-adjusted returns it can generate.
For a full version of Old Hill Partners Private Credit 2019 Outlook click here