Market Projections | June 13, 2022

Q2 2022 Investment Outlook: What a Difference a Year Makes

2022 has had a difficult start. Bond and stock markets are both negative year to date (as of the end of May), with bonds underperforming stocks in the quarter that ended on March 31. This is not a common phenomenon nor a welcome one given the dependence of stocks and bonds for portfolio return.

So, what happened?

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Well, macro events overwhelmed generally okay-to-positive fundamentals in the economy. This is the story of interest rates, inflation and commodities. The first two protagonists (interest rates and inflation) have become highly problematic and the third (commodities) is the antagonist in the story.

Where does this story end?

It’s hard to tell at this juncture. The standard deviation of outcomes is large. The base case is that the U.S. Federal Reserve (the Fed) engineers a slowdown, which will bring down inflation, albeit not back to pre-COVID-19 rates of 2 percent. The base case considers that history tells us the Fed’s track record of taming the inflation beast without a recession is not great.

The next question, therefore, is how deep a recession will there be? We think there is a case to be made that it will not be severe, given that employment and health of the consumer can keep us anchored.

What is our outlook?

The story is unfolding fast and while our protagonists — inflation and interest rates — have been under pressure, we see the antagonists — commodities — have begun to roll over. Thus, our plot seems to be moving into the final chapters of the messy part of the story.

We will be reading the data and continuing to navigate through the themes set forth in the book.

What does our outlook cover?

The Q2 2022 Investment Outlook includes tables that provide a snapshot of our forward-looking observations on the key macroeconomic factors driving markets and the direction of specific asset classes.

Global macro signals and outlook

We cover these global macro signals for developed markets and emerging markets:

  • GDP growth
  • Inflation
  • Policy rate
  • Currency
  • Equity valuations

Asset class signals and outlook

For 24 asset classes, we select one of five outlook signals based on our 12–18 month perspective relative to our 10+-year CMAs. The signals range from an above-normal return outlook to a below-normal return outlook.

The asset classes include equities, fixed income and these alternatives:

  • Hedge funds
  • Multi-asset class strategies
  • Private equity
  • Real estate
  • Infrastructure
  • Commodities
  • Energy
  • Timber
  • Farmland

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The information and opinions herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This article and the data and analysis herein is intended for general education only and not as investment advice. It is not intended for use as a basis for investment decisions, nor should it be construed as advice designed to meet the needs of any particular investor. On all matters involving legal interpretations and regulatory issues, investors should consult legal counsel.

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