Investment Outlook

Highlights from the week of May 6 – May 12, 2022.

As investors grapple with a new era of macroeconomic uncertainty, liquidity is king in the near term.

Knowing the stakes, the Fed is likely to keep surprises to a minimum.

Despite our view that a U.S. economic contraction is avoidable in the near term, the outlook for equities has deteriorated since the beginning of the year and we think this sour spot is likely to last as monetary policy becomes tighter.

The U.S. Federal Reserve met expectations and increased interest rates by 25 basis points.

Should the Russia-Ukraine conflict persist, it would lead to further tightening of financial conditions but is unlikely to deter the Federal Reserve from a 25 basis point interest rate hike in March. Tighter conditions will slow economic growth at the margins and constrain financial markets over the short term, but not over the longer term.

The market’s expectations for curve flattening may be excessive, as the timing of rate hikes and the aggressiveness of the Federal Reserve are still open to debate.

We see scope for continued global equity gains as the impacts from Covid, policy stimulus and inflation diminish. The current balance of market factors keeps us overweight U.S. large cap stocks.

The market’s curve flattening expectations may be excessive, as the timing of the hikes and aggressiveness of the U.S. Federal Reserve are still open to debate.

These are the seven major themes influencing positioning across our fixed income portfolios in the first half of 2022.