2.) Europe. The region still remains a major risk to markets. It’s still mired in a recession, its banking system is fragmented and we’re starting to see more frugality fatigue, especially in Portugal and Greece. In addition, there’s also the chance that we could see a market-unfriendly result in the German elections this fall.
3.) Rising tensions throughout the Middle East. With the recent collapse of the Egyptian government and Syria still mired in a civil war, there is the potential for more unrest in the region and more oil production disruption. As oil prices are already creeping higher, any further disruption in production would likely send them higher still. Increasing gasoline prices would represent a painful headwind for US consumers and the US economy.
To be sure, there are obviously an unlimited number of issues that could derail global and US equity markets. Other market watchers might cite, for instance, the risks of more cracks in the Chinese financial system, escalating tensions with North Korea, a fall budget battle in the United States and an exogenous shock impossible to foresee today.
But at this moment, I’m most worried about the three scenarios I cite above because I feel they are not completely reflected in asset prices. Do you agree that these are the major risks to stocks now? In the comments section below, let me know what market risks worry you most and why.
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.