Panic over, but what's next for markets?

Keith Wade

Keith Wade

Chief Economist & Strategist

See all articles

Markets have regained their risk appetite following action by central banks, a firming in commodity prices and evidence that the tail risks of a US recession or a China hard landing are not materialising.

Going forward we will need to see greater evidence of stronger activity for the rally to continue; however, this is also likely to bring the Federal Reserve (Fed) back into play, posing a challenge for investors.

Why have markets rebounded?

After hitting the panic button in January, investors have regained some composure: shares and corporate bonds have rallied whilst the risk appetite index has moved out of panic mode.

Arguably, the market simply became oversold and was due a bounce, but the key macro factors underlying this were the actions of central banks and firmer economic data, which have reduced the tail risks facing the world economy.

This may carry assets higher from here, but for a sustained improvement we need to see better growth in real GDP and corporate earnings.

The tail risks have eased, but has the outlook brightened?

At this stage, it is difficult to make the case for an acceleration in real GDP growth.

Our indicators point to steady but not spectacular growth, a continuation of the pattern of recent years where the world economy struggles to get growth much above 2.5%.

However, the Fed is still expected to lift rates - twice this year in our view - raising the prospect of further dollar strength and renewed market volatility.

It is possible that, as we have just seen, the selloff in markets then drives the Fed back and it stays on hold. Markets could then rally again.

However, this is not sustainable given the very low level of US interest rates and the late stage of the economic cycle.

Could we be surprised on the upside?

There are scenarios where growth is stronger than expected. One would be where the lags from the fall in oil prices continue to feed through and support consumer spending.

It should not be forgotten that the lags are long and consumers take time to recognise when a change is permanent rather than temporary.

We have also noted that the savings rate in the US remains high and whilst this might be a permanent feature of the post-crisis world, the improvement in wealth suggests that consumption could get a boost from lower savings in 2016.

Another scenario would be an improvement in productivity. At this stage this looks unlikely, given the weakness of capital investment spending, and so, as we have argued before, we may have to wait until governments recognise that monetary policy has run its course and other means of stimulus need to be deployed.


The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.


This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.


Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.


Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).


Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at or on request should you not have access to this webpage.


Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored


The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.