While previous Cyclical Market Forums have focused heavily on the eurozone, all three of this quarter’s scenarios presumed that the situation in Europe would remain in a fragile status quo for the near future, although that could change depending on events in the eurozone. The participants nonetheless viewed the eurozone debt crisis as a key factor in coming months.
Key Takeaways from the Forum: To see full report, please click here
Curt Custard, Head of Global Investment Solutions, Chairman of the Cyclical Market Forum (Chicago)
“There is almost no doubt that the fiscal cliff—no matter how it’s resolved—will lead to a drag on GDP growth next year. The question is how much, and if there is political will either to move toward fiscal responsibility with lower growth, or to push for growth at the expense of a continuing, unsustainable long-term fiscal position.”Joshua McCallum, Senior Fixed Income Economist (London) “Regardless of the outcome, the uncertainty caused by the fiscal cliff problem is likely to lead to heightened levels of volatility in the markets. Paradoxically, the VIX—the traditional predictor of volatility—has been at historically low levels, and it has been very cheap to hedge against tail risk.” Comments on Specific Asset Classes: Bruno Bertocci, Global Equity Strategist (Chicago) “As markets are pricing in the ‘end of the world,’ there are plenty of opportunities to make money in equities without a market-wide rise. We believe the long-term recovery of the US housing market will have more impact than the potential political artifice surrounding the fiscal cliff.” Mark Rider, Global Investment Solutions Strategist (Sydney, Australia) “Commodity prices would certainly be affected by a longer-term slowdown in global growth, but other factors also play a significant role in valuations. For instance, the impact of last summer’s drought in the US will likely lead to an extended period of elevated prices for agricultural commodities next year, no matter what happens in Washington.”