Equity Outlook | Q3 2016

Assessing the risks of seeking safety

Equity Team


Key takeaways

  • Non-U.S. markets may struggle to discount what Brexit means for different countries, sectors, and companies, leading to ongoing volatility.
  • As we define Brexit's economic effects, our outlook for U.S. corporate earnings remains cautiously constructive.
  • Promising areas of the U.S. market include financials and parts of the health-care, energy, and consumer cyclicals sectors that we believe have been left behind due to the "safety trade."

Equity markets finished the second quarter of 2016 in much the same way they started the first one — enduring a dramatic plunge followed by a remarkable rebound. It is fair to say that global markets were taken by surprise in late June with the referendum result in the United Kingdom, where a majority of voters chose "leave" the European Union over "remain." Despite the rapid recovery of equities in the aftermath of the vote, uncertainty — one of the most significant risks for markets in 2016 — became even more pronounced as we entered the year's second half.

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