Global equity markets are up significantly in 2019 as they continue to rebound from last year's sharp selloff. The S&P 500 index reclaimed new highs on its way to a 19% gain in the first half of 2019, the Russell 2000 index of smaller companies rose by 17% and the global MSCI All Country index advanced by 14%.

Global stock markets have seen a remarkable turnaround so far in 2019 from their lows in December. Two consecutive calendar quarters have rarely been so different in market sentiment or performance. The S&P 500 index plunged by –13.5% in the fourth quarter of 2018 on fears of an impending recession and concerns about a policy mistake by the Fed. Those worries have since dissipated as the index soared by +13.6% in the first quarter of 2019. In early April, equity indices have climbed back to within striking distance of their previous all-time highs.

As we embark on 2019, investors are still in a daze after a challenging few weeks in the global stock markets. Volatility picked up in early 2018, subsided in the middle of the year and then reached almost unprecedented levels in the fourth quarter. The number of outsized daily and intraday moves in December shot up dramatically and approached all-time highs.

While we saw uniformly stronger growth around the world in 2017, we now observe divergent regional growth trajectories. On the heels of fiscal stimulus and deregulation, the U.S. continues to dominate the growth story. The rest of the world has struggled to sustain last year’s momentum for a myriad of reasons. We examine the more notable drivers for this divergence below.

After an abnormally calm and placid 2017 in the global equity markets, a higher and more normal level of volatility has resurfaced in 2018. The year got off to a good start as the momentum from tax cuts pushed U.S. stocks higher by 8% in January. Investor focus shifted in early February to an uptick in inflation, a steady rise in interest rates and talk of tariffs and trade wars. Stock markets corrected by about 10% in February, retested those lows in March and have gone sideways in recent weeks.

After an abnormally calm and placid 2017 in the global equity markets, a higher and more normal level of volatility has resurfaced in 2018. The year got off to a good start as the momentum from tax cuts pushed U.S. stocks higher by 8% in January. Investor focus shifted in early February to an uptick in inflation, a steady rise in interest rates and talk of tariffs and trade wars. Stock markets corrected by about 10% in February, retested those lows in March and have gone sideways in recent weeks.

Stock prices rose sharply during 2017 in a remarkably coordinated rally around the globe. Even for the most optimistic forecaster, the sheer magnitude of the surge and its unusually smooth trajectory probably came as unexpected, but welcome, surprises. Most notably, 2017 enjoyed the unprecedented outcomes of positive returns in each of the 12 months and no decline greater than -3% from a prior high.

Even as the current economic expansion and bull market continue their remarkable run, investors are increasingly wary of rising valuations, geopolitical instability and potential policy missteps. Investors are also mindful of monetary headwinds as the Fed continues to raise rates and begins to trim its balance sheet.

The current economic expansion in the U.S. is beginning to approach longevity that has rarely been seen in prior cycles. This economic cycle, which began in July 2009, is already the second-longest expansion on record at 96 months. It has been a remarkable recovery … in many different ways beyond its sheer chronological age. One of its most striking traits has been the prevailing conundrum of low interest rates – at such a late stage of the economic cycle.