• U.S. economic growth in a modest upswing
  • Brexit unlikely to significantly affect U.S. economy
  • European growth will slow due to Brexit

In a global sea of economic and political turmoil, the United States stands out as an island of relative tranquility. An already anemic European economy, now confronted, will certainly slow further. Japan, is facing renewed recession concerns. China’s economy continues on its multi-year slowing trend, as policymakers struggle to cope with the transition from a manufacturing-led economy to one based more on consumption and services.

After a sluggish start to the year, growth appears to be on the upswing in the U.S. Job gains, remain solid, housing continues to grow, and consumer spending is regaining momentum. Indeed, the latest data underscored the resilience of the U.S. economy, which although less than historical standards, remains the envy of the developed world.

It’s still too early to fully assess the impact of last month’s surprising vote by Britain to leave the European Union, but the adverse effects of Brexit will cause the UK and other European economies to slow noticeably. Both the UK and Europe are facing a lengthy period of the unknown. Outside of Europe and the UK, the direct global impact should be fairly limited. The UK accounts for only about 2.4% of world merchandise trade and, for most economies around the world, trade links with the UK are small. 

The main channel through which Brexit could have an impact is weaker confidence. Given the event’s unprecedented nature, this uncertainty is likely to weigh on an already slow European and UK growth environment through reduced spending and investment.

Against this backdrop, the U.S. is better positioned relative to its global peers. We believe the overall impact to U.S. GDP will be modest. While the U.S. will not be immune to the difficulties caused by events in Europe (since less than 15% of GDP is derived from trade with other countries), our domestically focused economy is fairly well insulated

The U.S. economy was not receiving much help from the rest of the world before Brexit, and given we expect domestic demand to remain solid it should be enough to mitigate the external headwinds. U.S. economic growth has powered through a number of overseas risks in the seven years since the recession ended, and we expect it will weather this one as well.

Important Disclosures

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as on the date of this document and are subject to change.

There are inherent risks with equity investing. These risks include, but are not limited to, stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity.  Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

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Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets.  Emerging markets bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money.

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Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk.

Past performance is no guarantee of future performance.

Index Definitions

The Standard and Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

The U.S. Treasury 10 year note is a debt obligation issued by the United States government that matures in 10 years. A 10 year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

The MSCI World Index captures large and mid-cap representation across 23 Developed Markets countries.

The Barclays U.S. Corporate High-Yield Index covers the U.S. dollar denominated, non-investment grade, fixed rate, taxable corporate bond market and includes securities with ratings by Moody’s, Fitch and S&P of Ba1/BB+/BB+ or below.

The Barclays Emerging Markets USD Aggregate Bond Index is a flagship hard currency Emerging Markets debt benchmark that includes fixed and floating-rate U.S. dollar denominated debt issued from sovereign, quasi-sovereign, and corporate EM issuers.

The Bloomberg CFETS RMB Index is an index replica of the trade weighted CFETS RMB Index, which tracks the yuan against 13 currencies.

The U.S. Dollar Index is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.

Indices are unmanaged, and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.