In short:

·        Treasury bonds gain favour from investors as growth concerns rise

·        The 60:40 portfolio had one of the worst quarters on record

CIO Office Market Update

The war in Ukraine continues, with little visibility on its likely duration and outcome. Economic policy uncertainties have started to decline, while uncertainty regarding economic outcomes has increased. It is now clear that sanctions imposed on Russia are unlikely to be reversed for the foreseeable future. Similarly, the damage to infrastructure in Ukraine makes it unlikely that the country’s export industries can resume operations even if the war were to end tomorrow.  

In short:

In short:

·         Russia invades Ukraine, introducing more uncertainty to markets

·         Fourth quarter ‘21 earnings are strong, but momentum is fading

In short:

·         A tough start to 2022 for equities, as real yields rise

·         In most other markets, things are calmer

·         The Fed outlines the process of tightening policy in 2022

Looking back at 2021, markets have performed as a textbook case study of an economic recovery. Equities performed strongly as valuations improved with strong earnings. Fixed income assets performed poorly as yields rose from very depressed levels. But there was nothing textbook-like about last year’s recession, the recovery, nor the ensuing cocktail of monetary and fiscal policies.

This note was written on 25 November 2021, before the Omicron variant was reported on widely. 

In short:

·         Inflation reaches 30-year highs, but has been a complex and evolving process

·         The Fed’s asset purchase tapering looks likely to be accelerated

In short:

·         The global energy crunch is weighing on growth forecasts

·         Inflation expectations finally surge higher

·         Central banks expected to outline tapering schedule soon

In short:

Since the development of the Covid vaccines, we have taken a constructive view on equities. While equity valuations were high, they were justified by an expected recovery in earnings.  With the second quarter earnings season behind us, have we been justified in our views? More importantly, has the recovery in earnings been sufficient to moderate the high valuations?