As the US presidential campaign enters the home-stretch and the eurozone and China commit to resolving economic challenges, equities are poised to resume their upward trend, says BMO Harris Private Banking.

While the US recovery showed signs of weakness in the second quarter, the economy seems to have stabilised and improved in Q3. The housing market "improved noticeably", the firm said, posting year-on-year price increases whilst inventories dropped and affordability hit a "multi-decade high".

Meanwhile, despite "persistently low" confidence levels, US consumers increased spending and the private sector continued to create new jobs at a steady pace; unemployment dropped to 7.8 per cent last month, and in a positive sign that the economic recovery will continue, GDP growth is forecast above 2 per cent.

"Barring the mismanagement of the impending fiscal cliff situation, we expect the US to continue to produce positive growth through 2013 and avoid a recession next year," said Richard Mason, head of investment management at BMO Harris Private Banking. "On a larger scale, positive growth in one of the world's most dominant economies means good news for the international economy. This particularly bodes well for Canada as the US remains the single biggest influence on our economy."

The eurozone: "improving slowly"

BMO noted that the European Central Bank's debt purchase programme provided a "significant confidence boost" to debt markets and demonstrated policy makers' commitment to keeping the euro currency intact. Also, the yield on Italian and Spanish 10-year bonds dropped considerably in the third quarter - indicating lower perceived risk - and economic growth is expected to be flat over the next year.

The risks associated with sovereign debt are also expected to "remain manageable", as although debt troubles will take time to resolve, "every month that passes creates more confidence," Mason added. "Though one or more peripheral countries may leave the euro currency union in the next few years, their departures will likely not precipitate the collapse of the entire union."

China

Further monetary easing in Q3 helped China get back on track - with a soft landing ahead - after policymakers launched their stimulus programme in the second quarter.

"After lower-than-expected growth in the second quarter, China aims to further control its economic situation in a number of ways, hoping to beat their growth forecast of 7.5 per cent," Mason said. "Once the new political regime takes over in November, we anticipate China will announce additional stimulus measures, helping to boost growth further."

Click here to view a recent article discussing China's economic prospects.