The year 2018 will go down as one of the best in the nine recent years of US economic expansion. The unemployment rate, at +3.7 per cent, remains at a 49-year low. US GDP rose by +3 per cent in Q3 from a year earlier, a rate of growth exceeded in only three other quarters in this expansion that began in March 2009. Inflation reached the US  Federal Reserve’s (Fed) target of +2 per cent without overshooting it and wage growth is inching up to +3 per cent (still well below the +4 per cent of past expansions).

Meanwhile, in the rest of the world, the year began with most major economies expanding - leading some to think that Europe was going to expand at an even faster rate than the year before. By the third quarter, output in Germany - the eurozone’s largest economy - had contracted and the eurozone is expected to grow at sub +1 per cent rate this year. Japan has also seen a slowdown and as China’s economy and global trade volumes slowed, many Central Banks globally took a step back from sounding hawkish on interest rates.

I expect equities will rise post the Fed meeting this week as the dovish views finally get priced in. The US economy is set to grow at over +2 per cent rate in 2019. This leaves a window for equities and other risk assets to show renewed strength given the recent sell-off. The US economy does not need a tax cut. In fact, a tax cut will be counterproductive and it may overheat the economy, get the Fed to step in and raise rates and cause a recession in 2019.

I still recommend an overweight position in equities with a bias to US equities and sectoral bias to – industrials, technology, financials and healthcare. Despite the news of a yield curve inversion at the front end (2-year and 5-year), I put the probability of a recession in the US next year at very low. The US economy is set to grow at over +2 per cent rate in 2019.