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Societe Generale: 4 'Black Swans' Investors Should Worry About

Societe Generale: 4 'Black Swans' Investors Should Worry About

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By    |   Wednesday, 07 September 2016 07:18 AM


Strategists at Societe Generale have issued a short list of "black swan" events which could disrupt the global financial markets.

The black swan theory is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.

In the French bank's latest global economic outlook, SocGen said that various issues constituted downside risks to the global growth outlook, including the "drag from U.S. and European policy uncertainty" (still the highest risk according to SocGen), a hard landing in China, a sharp market repricing and consumers opting to save, rather than spend, more, CNBC explained.

"Policy uncertainty remains the most significant risk to our outlook," the report, released on Tuesday, said.

"We see two dimensions to this risk. First, there is the slow moving drag that comes from the uncertainty itself holding back notably investment and hiring decisions and structural reform efforts. Second, there is the risk of an adverse outcome triggering financial instability. In the case of Brexit, the former remains significant while the latter proved short-lived on the back of an aggressive response from the BOE (Bank of England)."

SocGen predicted that the U.S. would grow 2.2 percent in 2017, slightly above a consensus forecast of 2.3 percent. It believed that by end 2017, the Federal Reserve would have hiked the key interest rate to 1.25 percent.

SocGen believed that the U.S. could see a downturn in the second half of 2018: "Critical to this view is that we have not assumed any large scale fiscal stimulus."

Top economic risks and how likely they are:

  • Greater drag from the policy uncertainty headwind: 30%
  • China hard landing risks have eased: 20%
  • Market repricing of central bank tightening and inflation: 20%
  • Consumers opt to save more: 10%


Regardless, not all experts are as pessimistic about the market’s near-term future.

“We think the US stock market is going higher,” Morgan Stanley’s Adam Parker said, according to Yahoo Finance.

“We are raising our 12-month price targets for the S&P 500 – base case from 2200 to 2300, bear case from 1600 to 1800, and our bull case from 2400 to 2500,” Parker said.

The US stock market continues to defy the odds, with the S&P 500 rallying for seven and a half years in what has been one of the most impressive bull markets in history. At 2,179 as of Friday’s close, the S&P is up 227% from its March 2009 low.

Parker also reiterated his forecast that the S&P 500 heads to 3,000 by 2020.

“We still believe this to be true, as most US consumer metrics appear directionally positive (housing, jobs, delinquencies, obligations, confidence, personal spending, etc.); corporate excess seems under control; and low growth is still the base case economic forecast,” Parker said.

“With few other attractive investment alternatives, we see the US equity market as the beneficiary of further appreciation.”

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Strategists at Societe Generale have issued a short list of black swan events which could disrupt the global financial markets.
socgen, black swans, investors, worry
Wednesday, 07 September 2016 07:18 AM
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