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We see current conditions as largely benign as long as investors understand that risk may no longer be linear. Political shocks and policy-related risks are the variables to watch, whereas we see recession risk as still moderate.
Elevated policy uncertainty has been met with relatively contained market volatility, which is a disconnect versus historical norms. Markets today 1) may be more able to discern news from headline noise, and 2) may reflect more consistent economic expectations, both of which have been past drivers of volatility. We think VIX stability is likely to persist in 2020 but we recognize that fluidity in geopolitics still poses risks of episodic flare-ups.
Source: Economic Policy Uncertainty and Bloomberg. As of November 30, 2019.
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