Equities are now reacting to the cyclical outlook

The fall in share prices in the United States and the euro zone since the summer of 2018 is not due to: A downward revision of prospects for corporate earnings; An upward revision of prospects for long-term interest rates. The only possible explanation is that equity investors are now concerned about the cyclical outlook and fear a growth slowdown, the signs of which are clear in the euro zone although less pronounced in the United States. The expected fa ll in growth may play a role directly or via its effect on risk aversion.