3 Key Risks For Markets In The Second Half Of The Year

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On the latest edition of Market Week in Review, Senior Quantitative Research Analyst Abraham Robison and Research Analyst Brian Yadao discussed the latest government responses to the coronavirus pandemic. They also chatted about the main risks for markets over the next several months and provided an update on the global economic outlook.

The UK unveils additional stimulus package

The week of July 6 was active on the policy front, Robison said, as governments from around the world continued to take further steps to combat the impacts of the coronavirus. The UK, for instance, announced an additional £30 billion stimulus package on July 8, he noted, to help rejuvenate the nation’s economy. Meanwhile, with COVID-19 infections surging in parts of the world, some nations reinstated partial lockdowns, such as Australia, Robison said.

“All in all, recent weeks have been comprised of a mix of economic fits and starts, as governments grapple both with containing the virus and reopening their economies further,” he concluded.

How could the U.S. November elections impact markets?

The ongoing uncertainty surrounding the path of the coronavirus, the vast amounts of fiscal stimulus pumped into the economy in response to the virus and the upcoming U.S. elections all present risks for markets over the next few months, Robison said.

“Some investors are beginning to worry about an increase in inflation, due to all of the stimulus we’ve seen since March,” he stated. However, Robison said that so far, inflation remains low, adding that he believes it won’t be a problem until at least 2022. “There’s still an output gap in the economy, which is disinflationary in the short-term,” he explained.

Turning to the U.S. November elections, Robison said that a negative risk for markets would be a re-escalation in trade tensions with China by the U.S., as part of a potential re-election strategy for U.S. President Donald Trump. A win by presumptive Democratic presidential nominee Joe Biden, coupled with a Democratic Party takeover of Congress, also would present some risks, he said. “Some of the 2017 corporate tax cuts could be unwound, and there may also be a push to regulate the technology sector more,” Robison noted.

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