Recent months have been unusually eventful, characterized by a swing in the global political landscape, U.S. dollar strength, geopolitical flash points, demonetization in India and military coups in Turkey (among many others), all feeding into general market nervousness and a significant rise in volatility. This was certainly the case in emerging markets.
One of the hottest gifts of the recent holiday season was the Amazon Echo, which offers to ease the lives of customers by directing the system with its famous command “Alexa…” This move toward the automation of a greater percentage of our lives has a parallel in the investing world.
Can Mr. Trump perform miracles? How can we indulge in meaningful speculation about the unforecastable? The President-elect does have some relevant experience — running companies with mountains of debt.
One topic noticeably absent from the recent presidential election was the U.S. government debt. In fact, the topic seems to have fallen from public consciousness. In the medium term we do not expect current debt levels to cause a shock, but the longer-term effects could drag on growth, especially with an aging population and sluggish economic growth.
Our base scenario depicts the stable continuation of a US-led global recovery, with modest levels of growth being maintained and no recessionary dip.
As we look to the fourth quarter of 2016, we believe broader growth trends should be able to withstand the risks outlined here. While growth is slow, context is important.