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Charting Unusual Late‑Cycle Fiscal Stimulus in the U.S.

How can investors navigate volatility arising from late-cycle fiscal stimulus?

Charting Unusual Late-Cycle Fiscal Stimulus in the U.S.

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With unemployment already low at around 4%, the U.S. shift toward fiscal expansion late in this economic cycle goes against what we’ve seen for much of the past 70 years. As the chart shows, the government has typically spent countercyclically during economic declines to boost hiring and cut unemployment. Today’s fiscal stimulus paired with limited slack in labor markets could spur volatility, given higher risks to both the upside (faster GDP growth) and the downside (rising inflation and reduced “firepower” for policymakers in the next downturn). To navigate these uncertainties, we think investors should focus on strategies offering diversification and the flexibility to respond to changing conditions, potentially moving away from more benchmark-constrained strategies. 

For a further discussion of what late-cycle fiscal stimulus means for investors, see our Quick Takes video, “Is Volatility Here to Stay?

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The Author

Marc P. Seidner

CIO Non-traditional Strategies

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2Q 2018

Quick Takes: Is Volatility Here to Stay?

Marc Seidner, CIO non-traditional strategies, explains why structural trends in the U.S. – unwinding unconventional monetary policy coupled with fiscal expansion – will likely lead to sustained market volatility.

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All investments contain risk and may lose value. Diversification does not ensure against loss. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

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