We examine the current market environment across three time horizons: short-term, medium-term, and long-term.
In the short term, within one day to three months, market conditions are evolving swiftly and are complex to navigate. Market movements are largely technical in nature driven by hard to predict tariff news. The bond market remains a critical pain point; however, the good news is that it tends to trigger action when yields rise too much, which in turn helps bonds play a more constructive role in portfolios. Over the next 90 days, we will be closely monitoring interactions between China and the US, where China may opt to play the long game unless substantial concessions are offered by Trump. This scenario is expected to sustain volatility and a bear market bounce.
In the medium term, 3-9 months as a guide, we anticipate both corporate and consumer confidence to be adversely affected, ultimately impacting survey and hard economic data, posing additional risks to economic growth prospects and risk assets. Factors that could positively impact the outlook include deregulation, growth-oriented policies, and stimulus measures from China, independent of tariff discussions. Conversely, negative influences such as other policy instability, federal job loses, geopolitical tensions, and Supreme Court challenges to presidential powers persist.
Over the long term, there is a material effort to rewire global trade and political relations, which will impact the economy in various ways over the next three years and beyond. As a result, we anticipate a soft growth outlook, possibly recessionary, with inflation remaining difficult to predict. This environment suggests a scenario of low growth, where earnings clarity will attract a premium. Such certainty could stem from earnings generated by insulated domestic markets or structural demand. The environment also favours diversification into bonds, gold, and rate-sensitive stocks.
