Where we are now
Global equities have seen 17 days with a greater than 1% move up or down so far this year, compared with just three in all of 2017. Yet, having traded within a 10% range, global equities are roughly flat year-to-date. Behind this volatile and directionless trading pattern are at least three areas of heightened uncertainty: geopolitics, trade, and interest rates. The question of the day is not whether or not the market will break out of its trading range – it's whether the next move is up or down.
The base case: Markets will go up
Our base case is represented by the green path. We believe fears of tighter monetary policy, a trade war, and geopolitical shock will ease in the coming months, allowing investors to refocus on strong corporate earnings and economic growth.
Risk cases: What if we're wrong?
Of course, it’s possible the red path will occur. As such, we need to consider the probability and potential consequences of adverse scenarios. We see three main low-probability risk scenarios: