• U.S. stocks briefly touched new all-time highs this week. Aside from a significant bout of volatility in Q4 2018, equity investors have enjoyed relatively steady gains through the past several years.
  • While equity markets have been buoyed by the Fed’s increasingly dovish tone, the expansion faces a wide range of potential risks. As the chart highlights, the S&P 500 Index has seen a sharp increase this year despite a corresponding spike in the Global Economic Policy Uncertainty Index.1
  • Such risks include slowing global growth, the impact of trade policy uncertainty and continued geopolitical tensions.
  • Corporations are increasingly citing the effects of these concerns in their earnings outlooks. For example, Wall Street analysts lowered their earnings outlooks for Q3 from -0.2% to -0.8% and for Q4 from 6.4% to 5.8%.2
  • The Economic Policy Uncertainty Index’s recent climb corresponds with a Fed that sees growing risks to achieving a soft landing. Such an environment has often been ripe for periods of heightened market volatility.

1 Federal Reserve Bank of St. Louis, https://bit.ly/2d3pN5b, and Economic Policy Uncertainty, http://bit.ly/2OfbFgK, data through June 30, 2019.
2 Bloomberg.com, https://bloom.bg/2MfFifl.

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