Investment strategy
December 14, 2021

Putting ideas into action as economic expansion endures

December 14, 2021
David Bailin
Chief Investment Officer and Global Head of Investments
Steven Wieting
Chief Investment Strategist & Chief Economist

Emergence of the Omicron COVID variant suggests the pandemic will persist well into 2022. However, we believe the global economic recovery that is now underway will endure and equity markets have not peaked yet.

  • The hope that 8 billion vaccinations and widespread population exposure to the Delta variant would be sufficient to subdue COVID turned out to be false when Omicron struck. At the same time, we are convinced that the recovery will ultimately outlast the pandemic.
  • The global economy and equity markets do have the potential to grow, but the investment environment is changing. The pandemic-era economic collapse and rebound will not be repeated. Neither will the emergency monetary and fiscal easing steps.
  • We are entering a new phase of the recovery, what we call “mid-cycle”. We believe that the middle part of this recovery portends a normalization of the economy, where the demand relationship between goods and services stabilizes, supply chain and labor issues abate, and central bank policies move away from crisis management.
  • We expect global GDP growth to slow but remain solid and COVID’s impact to gradually abate via more exposure, vaccines and effective treatments.
  • We expect US inflation to retreat to 3% by the end of 2022 and trend at 2.5% in the coming decade, and for interest rates to remain low or negative, with US cash yields averaging 1.6% less than inflation over the coming decade.
  • For 2022, we expect public market equities to potentially provide a total return of 7%-9% with global fixed income returns of -1%-0% and the US dollar to rise modestly against major trading partners.
  • Given these views, our actionable ideas for 2022 include emphasizing on less cyclical, higher quality assets in sectors with sustained growth; shift from lower quality assets that have rebounded sharply from COVID impact.
  • We believe investors should identify stronger quality companies with leading positions in secular growth industries, overweight dividend growth strategies in both US and non-US portfolios and lean toward equities over fixed income, as accepting negative real returns from many bonds seems a poor choice.

Mid-Year Outlook 2022

2022 has seen a reset of the international world order and the end of boom conditions in markets. Despite uncertainties, we see many reasons to be fully, but wisely invested. Our Mid-Year Outlook is a critical guide for investors around the globe.

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