page banner image

Will global growth stay firm? Or will a variety of risks converge to damage growth and cause a sharp slowdown? QMA’s Ed Campbell and the multi-asset solutions team weigh in.

August 31, 2018

Earlier this year, global economic growth appeared to be coasting, with all major economies growing in unison for the first time since 2010. However, paths now appear to be diverging, shifted by escalating trade tensions, Italian politics and pockets of emerging market turmoil, according to QMA’s Q3 2018 Outlook & Review.

U.S. strength should head off a global recession for at least another year in spite of mounting trade rhetoric, say Ed Campbell, managing director and senior portfolio manager, Irene Tunkel, senior researcher and portfolio manager, and Peter Vaiciunas, portfolio manager, who authored the report. QMA is the quantitative equity and global multi-asset solutions business of PGIM, the global investment management businesses of Prudential Financial, Inc.

The three, who are part of QMA’s Global Multi-Asset Solutions team, are “bearly bullish” on the third quarter, seeing opportunity in U.S. risk assets compared with safe assets and the majority of overseas assets over the next three to six months. They have been reducing overweight to EAFE equities since April and keeping U.S. exposure steady—a trade that reflects the asset manager’s fundamental belief that U.S. markets are poised for more strength, especially compared to other developed markets. At the same time, QMA is underweight U.S. Treasuries, which don’t fare as well in a rising rate environment.  However, they are increasing exposure to TIPS, or Treasury Inflation Protected Securities, as a hedge against rising inflation.

The outlook cites estimates by the U.S. Federal Reserve that the level of U.S. GDP surpassed its potential sometime in the third quarter of 2017. Historically, this marks the end of a cycle—since 1950, the amount of time the U.S. economy has remained above potential before entering a recession has averaged just shy of nine quarters. This would imply the recession doomsday clock will strike midnight sometime around Q3 of 2019.

Productivity remains a potential wildcard, as an acceleration could unleash a virtuous cycle of business investment, increased demand and low inflation, providing a second wind for the global economic expansion. A rise in productivity growth would raise the level of potential GDP, giving the economy room to breathe. Unit labor costs would remain contained, and central bankers would have little incentive to turn hawkish in the absence of inflation pressures.


Read the full QMA Q3 2018 Outlook & Review and more market views on


For a media interview with Ed Campbell to speak about market or economic conditions, please contact Judith Flynn.