What Can We Expect for the Markets and the Economy?
There is diverging data on the economy. On the one hand, the labor market is robust, supporting consumer spending. On the other hand, leading indicators such as manufacturing and housing point to a contraction in economic activity. While the risks of a recession are elevated, the chances of a “soft” or “no” landing scenario have also increased.
Inflation is likely to remain elevated and sticky for some time, which may dictate Fed policy. We believe we have entered a structural shift with respect to monetary policy: expect the forthcoming time period to be marked by tighter policies (higher interest rates and quantitative tightening).
We are constructive on the outlook for stocks and bonds from current levels. Longer term – and with a structural shift underway with respect to monetary policy – we expect a moderation in stock returns over the next decade, relative to the strength experienced in the post-2008 years ending 2021. We aren’t bearish on stocks, but think expectations need to be reset for returns commensurate with historic averages of mid- to high-single digits.
Please watch the short summary video from Kieran below:
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