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Periods of elevated market volatility are normal within an economic cycle, and often represent a market divergence from fundamentals. In such periods, when others may see risk, we see opportunity as markets realign with the economic backdrop.
The economic transition from rapid recovery to healthy expansion remains on track, in our view, despite market volatility and an uptick in certain risks. We have continued to adjust portfolios for the evolving cycle.
We see continued economic expansion supporting positive equity returns in 2022, particularly for select areas of the market with a mix of cyclical and secular tailwinds.
While successive waves of COVID-19 and various economic and political disruptions presented headwinds in 2021, we saw economies continue the transition from rapid recovery to ongoing expansion and equity markets power through near-term risks and volatility.
Economies are moving from unprecedented recovery to steady expansion. We expect healthy market returns, but elevated volatility during the economic transition.
We expect the economic cycle to evolve quickly from the unprecedented recovery to an expansionary phase, which should present opportunity in select areas of the market as economic growth normalizes.
Recent U.S. inflation data, distorted by the compressed pace of the COVD-19 recession and recovery, may seem to affirm widespread inflation fears. However, we expect inflation is likely to moderate as the economy shifts from recovery to expansion.
We have a very positive economic outlook for 2021, but we believe allocation decisions are key to balancing market opportunity with nuanced risks this year.