Macro Scenarios in Focus: Are US Markets Priced for Perfection?

The International Monetary Fund^[1] suggests that “the global economy is poised for a soft landing,” despite regional disparities and the weaker or negative growth observed in Europe and Japan. Equity markets have performed strikingly well in the first quarter of this year, with the MSCI USA Investable Market Index (IMI) and MSCI ACWI IMI (our flagship global equity index) up by 9.6% and 7.4%. U.S. credit spreads remain tight when compared to historical standards.^[2] This raises the question whether markets are “priced for perfection,” and how potential negative news could impact portfolio values. Compared to the previous quarter, the expected return on equities has decreased, while our downside scenarios of a “hard landing” and “inflation resurgence” now indicate more-severe impacts on the value of a diversified portfolio of global stocks and U.S. bonds, with projected losses of 7% and 11%, according to our…