Open Questions

What to Watch

We highlight a select few of the many considerations that we believe are likely to influence global markets over the coming months. While nobody can predict the future, we offer our views on why these issues are important and how they may affect investment risks and opportunities.

Trade Protectionism (As of November 2018)
Consensus Icon - Open Question

Will the U.S.-China trade war derail the global economy?


After a period of escalating tensions and tariffs, the U.S. and China negotiate a truce sometime in 2019. China agrees to narrow the trade deficit through increased purchases of U.S. agricultural and energy products, as well as curtail transfer requirements and intellectual property theft. An adversarial relationship persists, but tariffs are removed or reduced.


Trade negotiations deteriorate as the U.S. imposes heavy-handed tariffs, and China is unwilling to make concessions. Tensions continue to escalate with neither side willing to budge, and negotiations break down with no new talks scheduled. Inflation spikes, supply chains are disrupted, and confidence plummets.

Interest Rates (As of November 2018)
Consensus Icon - Open Question

How high will U.S. interest rates go?


Interest rates move steadily higher throughout 2019, with the U.S. 10-year Treasury yield breaching 4% by mid-year. The Federal Reserve remains committed to a steady pace of rate hikes in an effort to keep labor markets from overheating. Meanwhile, budget deficits lead to increased issuance of Treasuries far in excess of demand.


Rates peak around 3.25% and drift gradually lower throughout 2019. The Federal Reserve, concerned about fragile global financial conditions, slows the pace of interest rate hikes. The U.S. economy begins to cool in concert with the rest of the world. A “flight to safety” creates enough demand for Treasuries, helping to offset the excess supply.

U.S. Exceptionalism (As of November 2018)
Consensus Icon - Open Question

How much longer can U.S. growth outpace the rest of the world?


U.S. exceptional growth has more room to run. Fiscal stimulus continues to fuel growth into 2019, and an acceleration in business capital expenditures extends the cycle as stimulus measures abate later in the year. Meanwhile, the European economy faces headwinds from Brexit and the Italian budget standoff, while China’s growth trajectory continues to fade.


The U.S. economy does not exist in a vacuum. Slowing growth overseas along with a strong U.S. dollar begins to weigh on domestic growth. Effects of the trade dispute with China also materialize as tariffs bite into corporate profits, slowing down capital expenditures. Overseas markets stabilize, narrowing the growth differential between the U.S. and the rest of the world.

Europe (As of November 2018)
Consensus Icon - Open Question

Is there a crisis looming in the European Union?


The Italian government and European Union (EU) leaders in Brussels reach a compromise on the Italian budget. Brexit terms are finalized by the end of 2018, leading to a relatively seamless separation when the UK officially leaves the EU on March 29, 2019.


“Brexit Day” arrives without a deal between the UK and the EU, resulting in a chaotic transition that slows the UK economy sharply. Italy and the EU are unable to reach an amicable compromise on the budget, leading to Italy’s exit from the EU. European banks are forced to write off massive Italian debt, and a financial crisis ensues.

U.S. Economic Trends (As of November 2018)
Consensus Icon - Consensus

How much longer can the U.S. economic expansion continue?


Moderate economic expansion leads to continued “Goldilocks” growth without excessive risk-taking or overcapacity. Inflation remains in check as U.S. wage growth is mitigated by continued globalization, ongoing factory automation, and more workers reentering the work force. The Federal Reserve is able to raise rates at a very measured pace.


Fiscal stimulus against a backdrop of already low unemployment causes the economy to overheat. Smaller businesses are unable to outsource labor overseas or benefit from exports and start to falter. Profit margins shrink as the tight labor market push wages up, but muted spending habits limit pricing power. Businesses struggle, layoffs ensue, and a negative economic cycle takes hold.

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