Why we should stay optimistic as markets navigate uncertainty
It’s not long since warnings of an upcoming slowdown dominated the British news agenda. But with a Brexit deal in hand and signs of a thaw in the global trade war, uncertainty has lessened and the fear of recession receded.
So it is smooth sailing from here? Hardly. New uncertainties are likely to emerge just as quickly as last year’s disappeared. Here’s three of the “known unknowns”.
First, elections are supposed to be the means of resolving which direction a nation wants to go. Traditionally, at least in the United States, the choice has been about two paths heading in the same general direction, just one leaning more right and one more left.
Not so in 2020. The leading Democratic candidate for president, Bernie Sanders, is a self-described socialist who vows to undo all the executive actions of the current President and fundamentally remake whole sectors of the economy.
The incumbent has demonstrated a willingness to take unconventional means in support of non-traditional ends, especially in trade and foreign relations. He is likely to increase the use of disruptive methods and create additional uncertainty if validated with re-election — and many Democratic operatives are openly speculating whether the senator from Vermont could be 2020’s Jeremy Corbyn, popular amongst his fans but given a battering at the ballot box.
Second, if the US is choosing between two paths in 2020, the UK has many more to choose from — all with their own drawbacks and limitations. Close-alignment with the EU? A Canadian or an Australian model, or something else entirely? As difficult as it was to get a Brexit bill through parliament, resolving the trading and regulatory relationship with the EU will be harder and even more critical for business. And there are less than 10 months to figure it out.
Thirdly, investors the world-over took a measure of comfort in the outcome of the phase one US-China trade deal. Yet the issues that remain, especially around technology, are more complicated and more difficult to resolve. Huawei gets the headlines, but the US administration is considering more far-reaching tools to block virtually any “technology” transaction between US firms and China and restricting all kinds of exports.
How far does the administration go? How will non-US companies who use US technology be impacted? How does China respond? Whatever the answers, they promise to be less linear and less predictable than tariffs — the impact of which are, at least, understood to policy makers and corporate leaders.
Despite this political uncertainty, and a raft of “unknown unknowns” like the coronavirus, consumer confidence is hitting record highs in the US and the UK. What explains such optimism?
Perhaps it is the recognition that despite all the uncertainty generated by policy makers, the fundamentals of the economy are remarkably strong. Or perhaps we have all become too confident in our ability to manage the unexpected.
Our economies have ploughed on despite uncertainty — albeit at a lower trend growth rate. Maybe we have become desensitised to surprise. Our ready expectation of the “unknown unknown” furthers our appreciation of the fundamental strengths that unite our two nations.
It is unfashionable to defend the virtue of businesses that do the simple things well — turn a profit by serving their customers, and the communities in which they operate. But the United Kingdom and United States have these in abundance. It is a good reminder to business leaders and policy makers alike that, when the only thing that is certain is more uncertainty, the best thing to do is to keep calm and carry on.
Eric Cantor is vice chairman and a managing director at investment bank Moelis & Company. He was the House majority leader from 2010 to 2014.