Strong labor markets, well-contained inflation and healthy consumer spending, especially in the U.S., should support the continued global expansion albeit at a slower pace. Our forecast is for a synchronized slowdown in growth. Still, the risk of a prolonged U.S.-China trade dispute could weaken our outlook.
Slowing growth, tepid inflation and continued trade uncertainty caused the Fed to put rate hikes on hold at its June meeting. Weaker-than-expected inflation readings and a decline in inflation expectations have led major central banks around the world to shift to a more accommodative stance.
As long as global rates stay low, U.S. and Canadian rates will likely remain low as well. We could see longer-term rates in both the U.S. and Canada move lower before moving higher if risk-off sentiment ensues following a further deterioration in trade negotiations and/or other geopolitical tensions.
In light of the potential impact of slowing growth and trade tensions on earnings and profit margins, we have lowered our year-over-year earnings forecast for the S&P 500. Still, earnings fundamentals are solid and could surprise to the upside if we see some progress on trade.
Even in the midst of uncertainties, the global expansion can continue (albeit at a slower pace), supported by a strong labor market, well-contained inflation and more accommodative monetary and fiscal policy.
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