Chart of the week

U.S. stocks rise amid increasing economic uncertainty

This week’s chart looks at why rising global economic policy uncertainty could signal higher U.S. stock market volatility ahead.

July 26, 2019 | 1 minute read
  • U.S. stocks briefly touched new all-time highs this week. Aside from a significant bout of volatility in Q4 2018, equity investors have enjoyed relatively steady gains through the past several years.
  • While equity markets have been buoyed by the Fed’s increasingly dovish tone, the expansion faces a wide range of potential risks. As the chart highlights, the S&P 500 Index has seen a sharp increase this year despite a corresponding spike in the Global Economic Policy Uncertainty Index.1
  • Such risks include slowing global growth, the impact of trade policy uncertainty and continued geopolitical tensions.
  • Corporations are increasingly citing the effects of these concerns in their earnings outlooks. For example, Wall Street analysts lowered their earnings outlooks for Q3 from -0.2% to -0.8% and for Q4 from 6.4% to 5.8%.2
  • The Economic Policy Uncertainty Index’s recent climb corresponds with a Fed that sees growing risks to achieving a soft landing. Such an environment has often been ripe for periods of heightened market volatility.

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