MacroResearchBoard

Looming Bond Weakness Versus Corporate Earnings Support – December 6, 2021

A just-published report updated our multi-asset investment recommendations and strategy heading into 2022. Recent capital market turbulence is likely a taste of what will unfold next year, as the liquidity boom that lifted all boats is set to slowly unwind.

Global fixed-income markets have had a rough year, and there are good odds that inflation will prove sticky in 2022, rather than transitory. This, in turn, will steadily increase the pressure on hyper-accommodative central banks to turn less dovish, which bodes poorly for 2022 bond market returns.

So far, equities have held up well, supported by the powerful uptrend in corporate earnings. However, the danger is that already elevated equity market valuations will come under downward pressure as monetary policy turns less accommodative, creating a headwind for equity market returns. The picture is far from bleak for stocks, but will be less bullish than has been the case for the past 20 months. Stay tuned.