Why ‘no normal’ is the new normal for global markets.

Forget the new normal — prepare for a world of “no normal” this year where traditional asset relationships are decoupling, economic growth is elusive and volatility is back with a vengeance.

U. S. Treasury yields have shot down once again, even as the Fed is now in rate raising mode. Typically, investors flock to gold when equity prices go down, but the price of the metal has decoupled from stocks over the past year. Gold has only recently shown signs of becoming a safe haven again, gaining US$ 100 in the past eight trading days, after remaining largely stagnant over the past three tumultuous months.

For a brief period last week, oil and the U. S. dollar moved together, con- founding their traditionally inverse relationship. Meanwhile, investors have made it clear that stocks, especially once favoured U. S. stocks, are no longer market darlings. The Dow Jones Industrial Average plunged 364 points, or 2.21 per cent Wednesday, while the S& P 500 shed 2.50 per cent. Both indices are off more than seven per cent so far this year.

The wild swings suggest that global markets, similar to the global economy, are set to see growing imbalances and volatility this year.

“Perhaps we have just hit a new normal or maybe the concept of normal just does not exist any more,” said Kathleen Boyle, managing director of global equity research at Citigroup

Some managers have begun talking about the possibility American stocks in particular could see a bear market this year. It’s a surpris- ing decoupling, given that the U.S. economy is one of the few bright spots of global growth.

“This is a capital preservation environment, not a money making environment,” said Jeff Gundlach, CEO of bond house DoubleLine Capital in his quarterly presentation.

Gundlach warned that the U. S. is currently in a “stealth bear market”, where many stocks have now fallen 20 per cent or more, even as the broader market has yet to hit that mark. He also cautioned that full- on bear markets tend to follow in the wake of a stealth market.

Bronka Rzepkowski, sen- ior global strategist at Oxford Economics, said that this year will likely see a year of “volatility peaks” as investors ponder whether the bull market in stocks, now in its seventh year, is near its end.

Meagre returns will come amid the potential for stomach- churning volatility as there are few pockets of good news for investors.

China, of course, is one of the bigger destabilizers. While the country released positive trade data Wednesday, which showed betterthan- expected export numbers for December, investors continue to worry the world’s second-largest economy has the potential to fall into recession this year.

At the same time, monetary policy uncertainty has increasingly become an issue for investors. The U.S. Federal Reserve is expected to raise its interest rate further this year, even as inflation remains painfully weak and economic growth outside the U. S. is proving elusive.

Rzepkowski of Oxford Economics said that all of the volatility means that investors this year need to be more defensive and accept weaker returns. Strategists at Citi agree, saying investors are unlikely to see the kind of stable returns markets have provided in the last few years.