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The Return of Market Uncertainty: Your April Risk Guide

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Part 9
The Return of Market Uncertainty: Your April Risk Guide PART 9 OF 9

Uncertainty Now: What to Expect in Global Markets

What are we leaving out?

In this series, we’ve tried to highlight most of the uncertainties that markets are facing in the current economic climate. Our list of these uncertainties has not been exhaustive, of course, but it has covered some major possibilities.

In addition to the uncertainties we’ve discussed, we can also expect some risk-off events based on the policy decisions of the Bank of Japan, which is also undergoing a quantitative easing program. If oil prices (USL) return to weakness, it could force some of the developed economies to extend the accommodative monetary policies, which could widen the yield spreads (HYG) and could adversely impact market dynamics.

Uncertainty Now: What to Expect in Global Markets

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Uncertainties that matter most

All the uncertainties that we have discussed in this series are important risks to be aware of. But if we had to prioritize, the failure of Trump administration to introduce the anticipated reforms could lead to a concerning risk aversion-based sell-off.

Political uncertainty in the Eurozone and geopolitical tensions arising in Syria and North Korea are likely to be the second major risks that global markets (VTI) could face. From the emerging market space (EMB), the ballooning debt in China, lower bound crude prices, and currency depreciation could act as triggers for a risk-off event.

The road forward

In the above graph of Wilshire 500 Total Market Index, all major downturns in markets eventually returned to normal. The triggers for those sell-offs were no different from the ones we have listed out in this series. Every market cycle has volatile periods, but the pain for investors’ comes when such phases last longer.

For this reason, we’ve tried to lay out all the major events that have the potential to trigger a risk-off event. Of course, there’s no certainty that these events will occur, and even if they do, it would be hard to estimate the severity of the impact until during or after the fact.

But markets have proven time and again that, generally speaking, they have the resilience and ability to justify fundamentals. So while short-term volatility (VIXY) might induce some pain and panic, we can generally expect calm to return to markets at the end of the story.

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