Q3 2022 OUTLOOK
Rising recession fears gripped global markets this quarter as an unpleasant combination of macro events led stocks into bear market territory and investors assumed a “risk off” stance across most asset segments. Declines in bonds were also substantial with the bond bear market growling even louder. The decline in stocks was driven primarily by the significant compression in earnings multiples. All major equity regions are now trading at a discount to their 10-year averages; however, multiples could see more downward pressure in the near term as inflation runs hot and central banks stay vigilant. Corporate earnings have been a key pillar of support for stocks during the recovery from the pandemic and analyst forecasts for 2022 are still upbeat. However, we see significant scope for earnings disappointments in the second half given tighter financial conditions and macro headwinds. Despite equity market declines and improved valuations, we remain cautious on stocks due to the combination of heightened recession risk, hawkish central banks, and significant risk of corporate earnings downgrades.
2Q 2022 MARKET REVIEW AND 3Q 2022 OUTLOOK
The uncomfortable reality for policymakers is that the primary sources of elevated headline inflation this year are supply driven — tied directly to the war in Ukraine and related Russia sanctions — which challenges the effectiveness of monetary policy as a tool for addressing the problem (link to Jennison article). In our view, we are not yet at the point where a US recession is an inevitable outcome, but the prospects for one continue to build in Europe. Adjustments in hiring plans and greater impact from foreign currency translation on reported profits are among the shifts that are impacting full-year financial outlooks at this stage. The advantages and attributes of high-quality growth companies tend to attract greater attention from investors during slowing periods, given their relative resiliency to economic headwinds.
2022 GLOBAL OUTLOOK
The outlook for global real estate markets is clouded by elevated uncertainty, with higher inflation, geopolitical conflict, supply disruptions and rising interest rates contributing to a volatile backdrop. Real estate has been resilient to shock in recent years, but downside risks have risen, limiting tactical investment opportunities. Increasingly, the focus for investors is on assets in sectors and markets that deliver dependable cash flows and in which demand is structurally supported by favorable underlying trends.