Markets & Economy

A Tail of Two Markets

A Tail of Two Markets
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Executive Summary

The global economy entered 2018 with significant positive momentum led by a broad-based and cyclical upswing across both developed and emerging economies.

Despite the improving economic backdrop, the market remained unsustainably priced for a “Goldilocks” environment of modest economic growth and low inflation accompanied by low volatility.

By the end of the first quarter, inflation, interest-rate and policy risks reemerged and weakened sentiment while increasing volatility.

Escalated trade tensions from higher tariffs and the potential for a trade war between the U.S. and China increased the left tail risk and contributed to the recent rise in volatility but it is too soon to know what the policy and economic effects will be.

As a result, the market is currently wedged between the narratives of strong economic growth and fears of increasing tail risk.

Going forward, strong earnings and a positive global growth narrative should support markets but heightened policy uncertainty leaves markets vulnerable to swings.

POSITIVE GLOBAL GROWTH MOMENTUM CONTINUES The market exited the first quarter of 2018 on an upward trend but battered by sentiment and tail risks which had lurked beneath the smooth surface of 2017. On the positive side, the global economy entered 2018 with significant positive momentum led by a broad-based and cyclical upswing across both developed and emerging economies (see Chart 1).

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Views are current as of the date of this publication and subject to change. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. The Dreyfus Corporation and MBSC Securities Corporation are companies of BNY Mellon. ©2018 MBSC Securities Corporation, Distributor, 225 Liberty Street, 19th Floor, New York, NY 10281.

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