The Fed failed to raise rates in 2021 in the face of what it called ‘transitory’ inflation. As a result, it has no choice now but to play catch up to try to rein in inflation – even if it means causing a recession. As global stock and bond markets grapple with increasing stagflation concerns, we have witnessed a broad repricing of financial assets. Global equities entered bear market territory in the first half of the year, while the broad U.S. bond market declined more than 10%.
Our 2022 Mid-Year Outlook – Reassessing the Evolving Market Landscape – addresses your most pressing questions related to this turbulent environment.
When will stocks recover?
It’s important to remember that markets move based on changing expectations about the future. While the last six months have been painful, stocks are now trading at more compelling valuations on a forward-looking basis. It’s foolhardy to predict market bottoms, but it is important to note that they usually come with peaks in both pain and pessimism. It is unlikely to be different during this bear market. Read more.
Are bonds a good investment right now?
Exacerbated by disparate policy responses by central bankers across the globe, conditions remain unsettled with inflation and interest rates. We continue to believe it is wise to actively manage fixed income and mitigate overall portfolio duration through portfolio construction. Read more.
You might also want to read: Don’t Bail on Your Bonds
Are emerging markets undervalued?
Bolstered by a more favorable valuation profile, emerging market stocks may draw additional support from more stimulus in China and a marginally stabilizing global commodity complex. While the Fed’s austerity campaign and a resilient U.S. Dollar may serve as headwinds, we believe the case for emerging market stocks persists. Read more.
Is the supply chain getting better?
The Fed can impact demand with monetary policy, but the supply bottlenecks are likely to continue for some time, exacerbated by flair ups in COVID-19 infections. Read more.
When will inflation go down?
Inflation continues to run at 40-year highs, which is untenable to the Fed. As shown by the Fed’s nearly unanimous approval of its 75 basis point hike on June 15, there will be a more accelerated and emphatic path to higher rates than expected. In our view, rising interest rates and a slowing economy could lead to waning inflationary pressures towards the end of 2022. Read more.
How can diversification reduce investment risk in today’s market?
In our opinion, the greatest risks currently impacting markets can be reduced through a globally diversified equity profile, a dynamic approach to investing in bonds, and exposure to real assets. Read more.
You might also want to read: Understanding Investment Rule #1
Read our full Mid-Year 2022 Market Outlook.
