Market Outlook 2022
2021 was a year of divergence and extremes. Equity market performances were largely diverged, with developed markets, especially the U.S. and Europe, significantly outperforming emerging markets. This is also true within emerging markets, where there was a huge divergence in performances among countries. There were also big swings and rotations between cyclical value and growth styles.
We expect 2022 will continue to be a volatile year for equities. The U.S. and Europe will likely struggle with persistently increasing inflation, while growth may start to moderate in the second quarter as the economies enter late-cycle expansion. We anticipate a more hawkish tone from central banks in the first half, as their playbook will change from transitory inflation to curbing inflation.
Although it is expected that demand will shift from goods to services and the supply bottlenecks will start to ease, inflation may be more structural in wage growth, food prices, energy costs, and housing prices. That said, tighter monetary policies may be offset by a record amount of fiscal stimulus, such as the infrastructure bill in the U.S. Amid slower growth globally and inflationary pressures, we will be favoring high quality growth companies with strong cash flows and pricing power.
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Market Outlook 2022