Central banks can only stretch policy so far in order to ignite growth-and many are nearing those limits. Despite their best efforts, global growth remains relatively low by historical standards. However, if monetary policy keeps rates close to zero, what tools are left to prevent the next economic slowdown? CIBC Asset Management (CAM) explores what these constraints likely mean for markets going forward.
Fixed Income vs. Equity - Equities are favoured and will likely stabilize following the third-quarter correction, but the risk of a global economic slowdown remains.
Equity - Equity valuations have improved since the beginning of the summer, but expected returns are not materially higher due to lower expected earnings growth.
Fixed Income - The Canadian bond market should do marginally better than its U.S. counterpart while well-selected, quality corporate issuers should outperform government bonds.
Currencies - The Canadian dollar could be heading deeper into undervalued territory, as it did in the 1990s.
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