While there are signals that the global economy is slowing down, it doesn’t appear to be quite at recession levels.

“That has major investment implications,” said Alec Young, managing director of global markets research at FTSE Russell, in a webinar on Wednesday.

Trade uncertainty is a big part of recent sluggishness in markets, he said. “Good news is trade negotiations between the U.S. and China will be restarting next week for the first time since they broke down in May, but nevertheless this remains a major overhang.”

Further tariffs on imports of Chinese goods to the U.S. would result in a much bigger hit to global growth than is already anticipated for the coming year, said Young. “You could see volatility return with a vengeance, especially in cyclical areas of the market if that were to happen.” While debates over the intellectual property rights between the U.S. and China are not likely to be put to bed for years, markets are eager for an end to the tariffs, he added. “Nobody has any illusions that the U.S. and China aren’t going to still have disagreements over competitive issues.”

In another macro issue, inflation in the U.S. has been relatively tame, giving the Federal Reserve room to potentially cut interest rates further, said Young. “Probably the biggest justification for them to cut rates, given that the U.S. economy is still in pretty good shape, is the fact that inflation is still below their two per cent target and the market sees inflation remaining subdued over the next five years.”

That potential willingness to cut rates has buoyed U.S. markets, said Young, because it means the Fed has further stimulus measures at its disposal.

In the U.S., markets are seeing divergence from earnings growth, which declined at the end of 2018, with stocks taking a deep dive at the same time. Since then U.S. equities have recovered nicely, but aren’t underpinned by new progress in earnings growth.

Notably, markets are projecting a significant leap forward in earnings growth in 2020, but it remains somewhat unclear what will drive that, Young said. “We’re just not seeing a macro catalyst that will get us there. You need an end to tariffs, an agreement not to have U.S.-China tariffs, an end to all the exiting tariffs. That would be very big and would help drive this earnings expectation that’s in the consensus numbers.” Stock analysts tend to overestimate and then walk back expectations, he noted, and earnings will need to accelerate significantly if current valuations are to remain attractive.