Summary
- While there continue to be plenty of material risks looming large over the economic outlook, the last few months have seen something of a balance emerge, uneasy as it may be.
- U.S. trade policy continues to represent a source of uncertainty and risk to the outlook for global growth. The flurry of deals, truces, adjustments and exemptions over the summer, however, leaves the likely impact on prices and economic activity far less negative than assumed six months ago, while also providing some much-desired clarity on policy direction.
- While there is rising instability across governments in Europe and ongoing disarray stateside, which has culminated in a shutdown of the federal civil service, that serves to dampen sentiment, the push to increase fiscal spending is a welcome development that looks to complement the still-solid consumer and the recent Artificial Intelligence (AI)-driven surge in capital investment.
- As well, there are growing expectations that the policy easing cycle is likely to continue in North America as central banks have shifted from a “reactive” approach to setting policy to a more “proactive” slant as concerns about economic slack move to the forefront.
- The various countervailing forces at play have resulted in an environment that has ultimately been supportive for corporate earnings and constructive for financial markets. Accordingly, stock markets have continued to establish new highs, while bonds have also generated positive returns, both contributing to solid balanced portfolio performance.
- Though uncertainty remains elevated, the willingness of investors to climb the “wall of worry” suggests market momentum may not be knocked off balance near-term.
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