We are monitoring a number of risks to equity prices. China, which had been an enormous driver of global growth, continues to struggle with a slowing economy. There have been some positive developments — inflation has cooled and China’s central bank has implemented stimulus measures. However, we have yet to see concrete evidence of improvement, and businesses continue to report slowing demand from China.
In Europe, while much progress has been made, eurozone debt woes are likely to affect the markets for some time — with fears and volatility escalating on occasion — as policymakers work toward a solution.
We are also keeping an eye on issues in the Middle East, which have the potential to escalate and become destabilizing to world markets.
And in the United States, the fiscal cliff remains an unresolved issue, and at this point it’s difficult to determine what effect it will have. At best, it will cause some consternation; at worst — if it’s not managed properly — it could be very disruptive to markets. It is important to note, however, that this concern has already been priced into many stocks, which may lessen the impact for equity investors.