The first half of 2022 was dismal for stocks, and strategists think there are more dark clouds on the horizon. Here’s how they suggest navigating it.
However, the macroeconomic outlook remains uniquely uncertain as the war in Ukraine and inflationary pressures persist, prompting central banks to embark on aggressive monetary policy tightening and exacerbating fears of a global economic slowdown.Asset Management advised investors that the"economic regime appears to be shifting" as adverse supply shocks persist, globalization slows and commodity prices remain"secularly high.
The emerging structural themes of deglobalization, climate policy and a commodity super-cycle will drive more persistent inflation across major economies. Although HSBC expects inflation to gradually cool off from its current multi-decade highs in many economies, Little said the"new norm" is likely to be steeper price increases in the medium term, leading to a phase of higher interest rates.
He added that unless there is a resolution to the war in Ukraine or oil companies are able to ramp up production – which he suggested would take at least six months and would run the risk of the bottom falling out of the oil market if Russian supply returns – the price pressures that have driven central banks toward drastic action show no sign of abating.
"When you have interest rates doing what they are, it's really hard to keep things stable and working and going one direction." The bank's asset management strategists believe we are now at or close to"peak pain" on inflation, but the data will not decline meaningfully until late in the year. Little said his team is watching wage data closely for signs of inflation becoming entrenched.
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