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Markets Highly Dependent on Binary Outcomes Resulting from Political Negotiations

BNY Mellon’s Pershing issues the Lockwood Investment Insights for the fourth quarter, says geopolitics will test investors’ resolve


Capital markets appear highly dependent on a large set of binary outcomes that may have more to do with political negotiations than changes in market dynamics, according to the latest Lockwood Investment Insights commentary.

“Markets have remained resilient through the third quarter, but negotiations over the United Kingdom’s planned exit from the European Union, protests in Hong Kong as well as U.S. and China trade talks and impeachment proceedings, among other developments, will test investors’ resolve in the coming months,” said Matthew Forester, chief investment officer of Lockwood at BNY Mellon’s Pershing and author of the report.

The capital markets outlook has not materially changed since last quarter as bond markets have continued to signal significant and renewed concerns about economic growth and monetary policy and investors worry whether cyclical pressures will grow more quickly than expected.

“Uncertainty can suppress market activity as investors wait for resolution before acting, but while we worry about these geopolitical events, better-than-expected outcomes or even simple clarity can have healthy results for markets,” Forester said.

Some highlights from the report include:

  • Difference Between Interest Rates in U.S. and Countries in Europe and Asia
    The large disparity between interest rates in the U.S. and countries in Europe and Asia puts downward pressure on U.S. rates. While foreign investors need to consider the currency implications of buying U.S. debt, relatively high rates in the U.S. will continue to attract global capital.
  • Misalignment Between Monetary Policymakers and Markets
    The difference in expectations between markets and monetary policy makers widened over the past year as global growth prospects weakened and markets expected more central bank stimulus than policy makers telegraphed. This misalignment is a risk for markets.
  • Divergence in Valuations Between Growth and Value Stocks
    Valuation gaps between growth and value stocks are approaching or exceed nearly all historical precedents. While this level of valuation disparity looks unlikely to continue indefinitely, it may portend other internal equity market shifts as investors adjust to new macroeconomic realities.
  • Impact of Rising U.S. Dollar on Global Capital Markets
    Currency risk is one of the top contributors of risk to a globally diversified portfolio. Many return streams, from foreign stocks and bonds, oil and other commodities depend highly on the exchange rate. Continued gains in the U.S. dollar put pressure on many global capital markets.

For more information on these trends, please visit to view the full report and relevant disclosures.

This material is intended for informational purposes only and does not constitute investment advice or an offer or solicitation to purchase, hold or sell any securities. The opinions expressed by Lockwood are as of October 2019, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Lockwood to be reliable, but are not necessarily all inclusive. This material may contain forward-looking information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

About BNY Mellon’s Pershing
BNY Mellon’s Pershing and its affiliates provide advisors, broker-dealers, family offices, hedge fund and ’40 Act fund managers, registered investment advisor firms and wealth managers with a broad suite of global financial business solutions. Many of the world’s most sophisticated and successful financial services firms rely on Pershing for clearing and custody, investment and retirement solutions, technology, enterprise data management, trading services, prime brokerage, managed account technology and operations and business consulting. Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of offices worldwide, Pershing provides business-to-business solutions to clients representing more than seven million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. Professionally advised managed accounts are offered through its affiliate, Lockwood Advisors, Inc., which is an investment adviser registered in the United States under the Investment Advisers Act of 1940. Additional information is available on

About BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of June 30, 2019, BNY Mellon had $35.5 trillion in assets under custody and/or administration, and $1.8 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on

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