Global Market Developments

Tuesday, June 5, 2012

The long-term positive case for global stock markets remains persuasive despite building evidence of a synchronized economic slowdown in the U.S., Europe, and the leading emerging economies of China, India, and Brazil.

Similar to last year’s “soft patch,” this year’s slowdown has provoked a debate over how severe and how long the slowdown will be and how financial markets will react.

In May, the initial negative response of investors triggered a “risk off” retreat of global common stocks and a flight to the perceived safety of U.S., German and Swiss sovereign bonds.

The near-term outlook for the global economy and equity markets is uncertain and volatility will likely be elevated.  By year end, however, we expect that the key economies will reaccelerate, as they did last year, and their stock markets will recover, as they did last year.

Long term investors should keep in mind the positive case, which includes:

  • Policy makers around the world are responding with stimulative, pro-growth measures
  • Oil and commodity costs are declining significantly
  • Inflation remains low and is declining
  • U.S. and European interest rates are at historic lows
  • In the U.S., two major impediments to growth during the recovery are improving:  banks are much stronger and the housing industry is bottoming
  • Global stock market valuations are very attractive and the corporate profit outlook remains positive

We will continue to monitor global markets will update our blog as developments unfold.