Summary

  • The year so far has been a victim of expectations — once again, as is almost always the case, things rarely ever turn out as great as hoped.
  • But that disappointment — and again, things in general are good, if not as good as anticipated at the outset of the year — has bred rampant pessimism that seems to be skewing the risks in the other direction.
  • This sort of backdrop sets up the potential for a positive surprise (for example, end of the war in Ukraine or a shift toward a more pro-growth stance in China) since the flip-side to the truism of high expectations is that it is also rarely, if ever, the case that things end up being as bad as feared. A recession may well materialize, but it appears as though it will be a mild and short-lived lull rather a deep and long-lasting hit.
  • From a market perspective, a lot of “bad” has already been priced into markets, suggesting that risks for forward performance may well be asymmetric. There is definitely a possibility that bonds and equities could continue to struggle, but the magnitude of the declines so far, and the fundamentals underlying the outlook, suggest that any further weakness would be comparably limited, while there is room for upside.
  • Clearly, the outlook warrants caution, but the broad valuation adjustment across asset classes has created ample opportunities for active investors with longer time horizons — the near term is likely to see volatility persist, but there is scope to anticipate that performance broadly improves in the year ahead.
  • As such, it appears prudent to maintain a continued bias toward more conservative and high-quality investment strategies, but with potential for adding to risk exposures as the market outlook is likely brighter than that of the broader economy — and it is the case that forward-looking markets typically find their bottom first.

 

Read the full Economic Outlook

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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