Q4 2021 Outlooks
Fourth Quarter 2021 Market Outlook
The investment horizon remains riddled with critical questions, and many of these issues may remain up in the air for some time. In the quarters ahead, there will likely continue to be surges and stalls across key economic data from retail sales and job creation to inflation. The resulting swings in investor sentiment point to consequent bouts of market volatility as well. But despite the plethora of lingering risks, we remain optimistic that, on average, the bond bull market will continue to chug along over the quarters ahead, thanks to low and range bound interest rates and a favorable backdrop for spread products.
2021 Q4 OUTLOOK
PGIM Quantitative Solutions is sticking with a moderate pro-risk investment strategy with economic growth likely to reaccelerate into year-end as the economic impact of the Delta variant recedes and global monetary policy conditions stay accommodative. On asset allocation, we remain overweight stocks, real estate, and commodities relative to cash and fixed income. The biggest risk to investors looking forward is that policymakers (both fiscal and monetary) allow inflation to rise above what investors consider to be benign levels for too long. However, we think it is still too early to get more defensive.
Quarterly Insights
Does the emergence of more contagious variants of the COVID-19 virus change our positive outlook for US real estate returns? Based on the past 16 months, the answer has to be no. There is no relationship between returns and COVID-19 cases; numbers of the latter have fluctuated up and down, but investors have consistently become more optimistic about the real estate outlook. Returns are improving not just for apartments and industrial but also for property types with more-uncertain tenant demand outlooks (office) and direct exposure to drops in consumer activity (retail). The broadening in investor demand suggests continued real estate value growth, whatever new variants of the virus may bring.
3Q 2021 MARKET REVIEW AND 4Q OUTLOOK
Investors are facing a complex landscape heading into year-end. Interest rates are responding to elevated wage and goods price inflation, and while the direct disbursement of fiscal stimulus is winding down, liquidity remains abundant, sustaining high levels of demand and contributing to inflationary pressures. We expect corporate profit growth to return to pre-COVID-19 trend levels over the course of next year and believe the developments of the past 18 months have accelerated trends in consumer and enterprise behavior that were already in place prior to the arrival of COVID-19. That step-up in growth in these areas should persist for some time.
