Tactical Investment Strategy, January 2022

January 24, 2022 — For 2022, we expect the Fed’s policy transition to be the dominant macro factor, driving rates moderately higher, limiting fixed income returns, and injecting volatility into credit spreads and equity prices. From an economic standpoint, the recovery appears on firm ground, despite the recent spike in new Covid infections. We expect continued strong consumer demand —supported by elevated savings, ebbing effects of Covid on economies, and loosening supply lines –to drive above-trend growth globally for the first half of 2022. We also expect inflation to run above trend for a couple more quarters until it starts to decelerate in the second half, as base effects and easing supply chains come into play. Given our outlook, we’ve broadly reduced risk overall among our strategies, which has mitigated volatility in early 2022 and should create some dry powder for tactical opportunities as they present themselves.