Market Downturn Could Persist for Another One to Three Months, According to BNY Mellon Asset Management

LONDON and NEW YORK, Aug. 16, 2011 /PRNewswire/ -- The current market downturn sweeping the United States and Europe is expected to persist for another one to three months and will not be as bad the 2008 financial crisis, according to Jack Malvey, chief global market strategist for BNY Mellon Asset Management.

"The worst case would be a mild brief recession, but we are more likely to experience a low-growth recession over the next three to six months," he said.  "While the worst of the current downdraft likely is behind us, it is difficult to determine the exact market bottom for these types of corrections."

Malvey characterized the current environment as an aftershock to the Great Recession, and noted that anxiety about a second economic dip after a primary recession has long been common. Typically, such concerns and negative market reaction about a possible secondary recession tend to dissipate within three months as a result of negative news exhaustion, markets finding an equilibrium state, and the emergence of attractive equities and credit debt after their decline to discounted valuations, he said.  Malvey also noted that risky assets tend to rally before the end of recessions.

The current market volatility has been sparked by a combination of catalysts, including anxiety about a potential U.S. default arising from the spirited Washington debate over raising the U.S. debt ceiling, the ensuing downgrade of the U.S. by S&P from AAA to AA+, the threat of European contagion, and growing evidence of global economic growth deceleration.   Taking a long view, these developments mark the first step in a major political and economic course adjustment for the United States and Europe, according to Malvey. The anemic post-recession recovery and the pronounced market volatility indicate that both the U.S. and portion of Europe are on an unsustainable path due to reduction in potential economic growth, aging demographics, and rising entitlements, he said.

"This will be a long journey," he said. "Additional difficult decisions will be required in coming years along the road to fiscal rectitude.  Adding to the difficulties in the U.S. is the concern about whether the new congressional super committee can agree to further deficit cuts in December 2011 without the enactment of draconian automatic triggers."  Malvey also said that many market observers are questioning the advisability of federal government spending cuts in a high-unemployment, near recession environment.

Regarding the sovereign issues in Europe, Malvey said, "It remains to be seen if the European Union, International Monetary Fund and the European Central Bank can shore up the capital markets and prevent the issues in the weaker European economies from spreading."

Concluding in looking at the current low-interest environment, Malvey noted that dividend-paying equities could become increasingly attractive.  He added that the unresolved European debt issues could drive the dollar higher against the euro in the short run, although he expects the dollar to continue to decline against most other currencies over the medium term

Notes to Editors:

BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets.  BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team.  It has $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available at www.bnymellon.com and through Twitter @bnymellon.

All information source BNY Mellon Asset Management at June 30, 2011.  This press release is qualified for issuance in the UK and US and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorised. This press release is issued by BNY Mellon Asset Management (US) and BNY Mellon Asset Management International Limited (ex-US) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. Registered office of BNY Mellon Asset Management International Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorised and regulated by the Financial Services Authority A BNY Mellon Company(SM)

SOURCE BNY Mellon