This week has several key market-moving events, including the European Central Bank (ECB) meeting, potentially impactful dialog coming out of the World Economic Forum in Davos and key economic data in the both the U.S. and around the globe. However, the swearing in of the new administration on Friday and the changes that will be made in Washington trumps all of them (pun intended).
Recent comments by Theresa May about Brexit pushed the pound below 1.20 to the dollar for the first time since October, and Donald Trump commented Brexit would be a success leading to more countries leaving the European Union. The markets will be on edge amid more uncertainty. I believe the markets have priced in a lot of positive expectations for the new administration, including tax reduction/reform and reduced regulatory burdens. However, the potentially changing landscape for globalization, in my opinion, has not been priced in to markets. The uncertainty that comes from changing the playing field across the world should not be underestimated. In the long term, it may all be a positive, but the journey will have significant winners and loser and keep markets on edge.
I continue to expect the coming months to be bumpy for both stocks and bonds. I remain cautious about asset prices in this period of uncertainty.
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