Knowledge Center Archive
Quarterly Economic Outlook: Moving Ahead Despite the Challenges
It has been said that bull markets climb a wall of worry. But in the past few months, it has been more like a Great-Wall-of-China-sized worry. The list of concerns are considerable: oil-price spikes, a civil war in Libya and political ferment in other parts of the Middle East and North Africa, inflation scares and rising interest rates in many emerging-market economies, fiscal-policy fights and political gridlock in the United States, an austerity budget in the United Kingdom, more periphery debt worries in Europe and, worst of all, a devastating earthquake/tsunami/nuclear disaster in Japan. These events have resulted in a correction in equity prices and heightened volatility, as well as a flight to quality into government bonds. After looking at these global and region-specific challenges, how they could evolve and the impact they could have on various asset classes, we come to the following conclusions:
- Unless oil supplies are disrupted further, the odds still favor continued growth in the global economy.
- We think global equities will continue to work their way higher.
- We believe investors should continue to maintain their exposure to riskier assets on the assumption that the bull is alive and well.
The multiple crises facing investors have created a scenario reminiscent of the immediate aftermath of the Lehman bankruptcy, in which economies and banking systems around the globe faced the specter of collapse. In sharp contrast to the autumn of 2008, though, financial markets have bent but not broken.
We look at each crisis in isolation and provide our read of each situation.
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