Developed Countries

While the economic fallout from Brexit is likely to play out over a long horizon as the U.K.'s exit is negotiated, this political event will have repercussions for U.S. equity markets in the interim. For instance, defensive sectors have surged, in relative performance terms. Since the financial crisis, consumers' propensity to save has steadily climbed. That has coincided with increased traffic at non-cyclical retail stores, to the extent that their sales have largely outpaced overall retail sales in recent years, which is unusual during an economic expansion. Policy and political uncertainty are likely to fuel this trend. Thus, the consumer staples sector should continue to enjoy an upward re-rating in relative forward earnings estimates. Both valuations and technical conditions are below previous overbought extremes, underscoring that there are few barriers to ongoing stealth outperformance. We reiterate our overweight position. The ticker symbols for the stocks in this index are: BLBG: S5CONS.

Post-Brexit uncertainty will continue for some time. But we were already cautiously positioned, and would not go any more defensive.

Even if commodity markets are not yet pricing a higher probability of fiscal stimulus following the U.K.'s Brexit vote, we believe they will begin doing so in very short order.

The Brexit drama has moved from the realms of psephology into the realms of game theory. How will the game play out? And how will the economy and financial markets react?

Special Report

The Brexit vote has ended the reflation trade, but does not represent a "Lehman moment" either. Stick close to benchmark in terms of broad asset allocation, and watch European bank CDS for signs that another financial crisis is brewing.

The Brexit vote has ended the reflation trade, but does not represent a "Lehman moment" either. Stick close to benchmark in terms of broad asset allocation, and watch European bank CDS for signs that another financial crisis is brewing.

Special Report

The Russo-Chinese relationship got a diplomatic boost this week, but can China provide Russia with the capital it needs to boost productivity meaningfully?

The S&P media sector has been in a consolidation phase for over two years, in relative performance terms. That is consistent with cash flow trends, which flat-lined alongside a slump in sales growth and rising costs. However, we expect both relative performance and cash flow to turn higher. Sales growth has hooked back, because the industry has been able to introduce new services and raise selling prices by enough to drive up consumers' share of spending on media services (second panel). Pricing power has surged in both the cable and entertainment industry. If cash flow grows again, as we expect, then an increasing scarcity of media shares outstanding should ultimately act as an upward force on share prices as investors boost allocations to the space. We reiterate our recent moves to overweight in both the S&P cable & satellite and S&P movies & entertainment sub-components. The ticker symbols for the stocks in this index are: BLBG: S5MEDA - DIS, CMCSA, TWX, FOXA, CBS, OMC, VIAB, IPG, SNI, DISCA, NWSA, TGNA, DISCK, FOX, NWS.

Rising policy uncertainty is negative for global equity multiples.