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Lesley Marks is Chief Investment Strategist of BMO Private Wealth.Chris Young/The Globe and Mail

Around this time last year, investors were commiserating about steep market losses and wondering whether a recession was around the corner. Lesley Marks wasn’t one of them. The chief investment strategist at BMO Private Wealth (Canada) was among the more optimistic bunch that believed better market conditions were ahead. As it turned out, major North American indexes hit record highs in 2019.

The Globe and Mail recently spoke to Ms. Marks about her calls for 2019, both right and wrong, and predictions for 2020. Here’s a hint: Still no recession in sight.

Reflecting on 2019, what calls did you make at this time last year and what happened?

Let’s start with the things we got right: We thought that 2019 would be characterized by slower growth but would not equate to a recession. We thought the U.S. would continue to dominate with the best relative economic growth and we expected bonds would underperform equities. In December of last year, we didn’t expect the extent of the policy pivot that we experienced from the U.S. Federal Reserve [towards lowering interest rates]. But once that became apparent in January of this year, we felt even more conviction on our call that equities would rally.

Like many others, the one thing we didn’t get quite right was that we didn’t expect the rally in interest-rate sensitive investments like bonds – certainly not to the extent that we saw. Interest rates fell across the yield curve, with long-term yields falling more than short-term yields. This caused the yield curve to invert and long-term bonds to outperform short-term bonds on a total return basis. What happened was we saw moderate growth, without any inflation and with the pivot from central bankers [to lower rates] that also put downward pressure on interest rates globally. That was positive for fixed-income investments. We didn’t anticipate the extent to which interest rates would fall.

What are some of your key predictions for 2020?

For 2020, we expect the [market] environment will continue to be supportive of equities over fixed income, underpinned by a moderate economic growth backdrop and accommodative monetary and fiscal policy [to help stimulate the economy]. We shouldn’t underestimate the importance of labour strength in Canada and the U.S. and even globally. Labour, and by extension the consumer, has been a key factor in holding economies to this moderate growth level. We are also expecting a recovery in manufacturing.

Another driver for markets will be sentiment – mostly from political events. We recently received a number of resolutions [including] the outcome of the U.K. election, which we think clears the path for a negotiated Brexit deal in 2020. There’s also the bipartisan approval of the USMCA [U.S.-Mexico-Canada Agreement] and the de-escalation of the U.S.-China trade war with a Phase 1 agreement announced between the two countries. The focus in 2020 will be on politics south of the border, in particular, the race for the leadership of the Democratic Party followed by the U.S. presidential election in November. This could create a lot of noise and higher volatility in the market but we would view this more as a buying opportunity.

Are global recession fears behind us?

I think they are behind us, for now. The economic cycle is alive and well. We don’t see a recession in the next 12 months, based on the strong fundamentals. We still think it’s a good market for equities, although we don’t think it will surpass their performance in 2019. We think it will be a more modest equity-appreciation year with more volatility.

With markets at or near record levels today, should investors wait for a dip?

We don’t view valuations as a concern. We know a lot of investors will look at the markets hitting record levels and feel like it’s not a time to be buying equities, but we would take that back to the fundamentals and say that valuations are still attractive and we aren’t expecting a recession [for 2020]. We don’t see stocks as significantly overvalued in any of the major regions.

What’s your outlook for fixed income securities?

We still think that credit is attractive based on the underpinning of a moderate-growth economy. In Canada, the yield curve has stayed quite flat while it has steepened slightly in the U.S. If the Bank of Canada moves to cut interest rates, our expectation is that we will start to see a steepening of our yield curve. You would be better off, as an investor, to be in shorter duration [products] in your positioning in Canadian bonds.

What lessons should investors take from the market runup in 2019?

The most important lesson from 2019 is the importance of being disciplined in your investment strategy and understanding your target risk-and-return profile – and sticking to that plan. When people are fearful, as they were in 2018, and are exiting equities in particular, it’s very difficult to get that reverse call right of when to get back in. This is one of the best examples of why we shouldn’t be emotional in our investing. We always need to come back to the fundamentals that are driving markets.

What’s the greatest risk to financial markets right now, in your view?

The greatest risk is usually the one that you don’t know about. It’s something that comes out of nowhere that you couldn’t have predicted. That’s why exercising discipline around long-term thinking and strategic asset-allocation is so important, so that when that unpredictable event happens that you stick to your plan for how you should be invested.

This interview has been edited and condensed.

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