In the last edition of The Capital Markets Analyst, we warned that the party in the financial markets might not last much longer. Since then, the US S&P 500 has fallen considerably from a record high. We think that it will remain under pressure, as the Fed continues to step on the brakes. Indeed, we forecast that the index will slump next year, as the effects of past monetary tightening and fading fiscal stimulus cause the economy in the US to slow sharply. In our view, this will be contagious again, with risky assets elsewhere coming under renewed fire.
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