SEI recently released its third-quarter Economic Outlook. A summary of the conclusions is provided below:

• There are many things over which investors can lose sleep, including continued global economic uncertainties; possible economic and stresses stemming from Brexit; disenchantment with free trade and globalization; ineffectiveness of monetary policy and lack of government economic-policy leadership; mounting pressures on corporate profits; severe sovereign- and corporate-debt burdens; and political uncertainty in many nations.
• Despite the many challenges highlighted during one of Twain’s “peculiarly dangerous months,” as long as central banks pursue aggressively easy policies in a world mostly characterized by slow economic growth (not recession) and mild inflation pressures, we believe any pullback in the price of riskier assets should be limited.
• Taking a closer look at some of the forces shaping markets, policymakers at the Federal Reserve finally conceded that interest-rate normalization will be slow; however, an uptick in inflation, combined with the tightening labour market and slow-but-steady economic growth, seems to have tipped the balance in favour of a rate hike, probably in December.
• U.S. household finances are in good shape as a result of decent employment trends and the bull market in stocks, bonds and home values. There is little reason to expect a serious slowing in consumer spending. The main concern for the U.S. is weakness in business investment in equipment and structures.
• The U.S. presidential election will likely have an impact on the economy and financial markets; U.S. markets have a tendency to be unusually volatile, both immediately after the election and throughout the following year.
• A downturn in U.S. oil production has pushed total world oil output into contraction despite continued production gains by the Organization of the Petroleum Exporting Countries and Russia. Crude oil prices are unlikely to advance far above current levels, perhaps for years.
• Well ahead of any potential negative effects of Brexit, the Bank of England cut its base interest rate to the lowest level in history; the central bank also restarted its quantitative-easing program and its funding-for-lending scheme.
• Japan’s economy still lacks momentum despite fiscal stimulus packages, structural reforms and aggressive monetary policy initiatives. The Bank of Japan is now focused on keeping the 10-year Japanese government bond pegged at zero indefinitely; it also wants inflation to exceed its previous target of 2% and keep it there for a considerable time.
• The U.S. and China were the primary growth engines of the world before the global financial crisis, but have since slowed. We think it’s possible that India eventually becomes a third major engine of global growth.

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