Geopolitical matters1 have complicated the tug-of-war between fiscal2 and monetary3 policies and contributed to investor concerns about increased policy uncertainty. Policy uncertainty will likely persist, but we think financial markets will climb this wall of worry.
The U.S. economy continues to perform well when compared to the rest of the developed world, and is still exhibiting growth near its long-term trend. The outlook in other developed economies is not quite as bright, however, as unconventional and aggressive policy decisions from global central banks are becoming increasingly ineffective.
Since we began highlighting the return of fiscal leadership as a primary driver for economic and market activity nearly two years ago, we’ve seen the return to central bank dominance, particularly by the U.S. Federal Reserve. This has significant implications for global markets.
We lowered our 2019 earnings growth forecast for the S&P 500 Index on August 19 due to increased risk to economic growth and corporate profits from the ongoing trade conflict between the United States and China. Until we get clarity on trade, we believe earnings will likely continue to grow but only modestly.