Focus 2015: Market Transformations and Risks


photo: Veer

Wells Fargo Global Asset Manager Tracie McMillion, CFA® identifies four themes that are likely to influence the global economy and the financial markets in 2015.

My fitness wristband awakens me in time to make my virtual gym class—in my basement. As I finish my workout, my trusty phone tells the coffee maker to start brewing and alerts the thermostat to warm the bathroom for my shower. The kids were up late last night on Facebook, which normally would result in consequences except that they were chatting with their grandparents who live in South Africa. An alert pops up on my tablet notifying me of a breach in security at one of the retailers I frequent online, but not to worry, I have identity theft insurance, right??

We live in a fast-paced world, a world that is transforming before our eyes. When we think of how quickly change has occurred, and how dependent many of us have become on our “devices” to help us navigate the complexities of life, we also must consider how many
(or how few) safeguards apply to these devices and the processes they drive. Technological innovations allow us to interact with more people, more often. They also allow companies to design and implement new products and technologies faster and more efficiently than ever before. This process helps keep prices of goods low and supports revenue growth, providing many attractive opportunities for investors. But there are countervailing risks for investors to consider.

Now that we are well into the recovery phase of this economic cycle, several market transformations are happening concurrently. In this year’s Focus report, we look at four areas of transformational change and how investors can benefit from these changes. Equally important, we identify and weigh the potential impact of some associated risks.

Our first theme highlights the changes that are occurring as the U.S. economy takes the lead among developed countries in “Emerging from a low-everything environment.” In recent years, global central banks have stepped up their responses to stimulate global growth. In doing so, they have contributed to an economic environment of low interest rates, low inflation, and low stockmarket volatility. The U.S. central bank, the Federal Reserve (Fed), now believes that domestic economic growth is sufficiently positive to start exiting from its extremely accommodative monetary support. This transformation in Fed policy likely means modestly higher U.S. interest rates and the potential for increased market volatility.

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