Recession may be looming in second half, say strategists surveyed by Natixis Investment Managers
-
Results of the
Natixis Center for Investor Insight mid-year survey of 34 experts show that nearly one-quarter (24%) believe recession is inevitable while another 64% see recession as a distinct possibility over the next six months - The survey shows that nine in ten strategists believe central bank policy will be the biggest market driver over the next six months
- The strategists see energy prices (76%), food prices (64%), and wage hikes (61%) as the top three drivers of inflation
- Almost six in ten (58%) believe value will continue to outperform growth for at least a few more months, while nearly one-quarter (24%) think value will be on top for a few more years
After six months of navigating rising rates, inflation and geopolitical tensions, recession fears are on the rise for 2022, casting a long shadow over prospects for global economies and markets in the second half of the year. Results of a mid-year survey of 34 market strategists, portfolio managers, research analysts and economists at
“Ten years of over-reliance on easy money led to significant outperformance for growth equities. That’s over for the foreseeable future. The biggest market driver at the end of 2022 will be central banks and bringing down inflation to lower the longer-term cost of capital,” said
Inflation tops market risks
Key market assumptions for low rates, low inflation, and low volatility may have boosted market performance for more than a decade, but since the start of the year that unique confluence of factors has been reset. The catalyst for much of this shift has been inflation.
In fact, seven in ten rank inflation as the biggest market risk for the second half of the year. Even though it has tapered slightly since its high, 36% of respondents go so far as to set the level of risk due to inflation as a 10 out of 10.
Central banks also factor into the picture with 52% citing their policy decisions as a key inflation driver. Another 46% also believe that the supply chain issues that helped drive inflation early in the pandemic will continue to do so through year-end. However, less than one in four believe inflation will remain persistently high.
Recession is a distinct possibility, if not inevitable
Faced with prospects for rising interest rates and tightening monetary policy, strategists place recession as a close second on the list of concerns with 64% ranking it as a top risk.
Policy makers have many tools at their disposal to address inflation and given the challenge of achieving the right timing for policy implementation, the margin for error is slim.
For many the question remains as to whether these efforts will thwart inflation, trigger a recession that could last two to three quarters, or result in stagflation that lasts for years. With all the possible outcomes, no wonder more than half (55%) of those surveyed also cite a central bank error as a key risk.
“The word recession is casting a long shadow over the markets, but in some ways the only way out of this inflationary environment is for central banks to trigger this recession. Then we’ll come out on the other side of the inflationary shock, and the markets could then rebound,” said
Geopolitics, war, and oil
Inflation, recession and central bank policy may factor prominently in their views on market risks. Yet strategists also see the potential for world events, like the war in
To underscore the connection between politics and energy, oil prices spiked to
What a difference a year (or two) makes
Of all that strategists forecast for H2, the most telling sign of the times may be how their views on Covid-19 have changed. Where the pandemic had resulted in a worldwide lockdown in 2022 and continued work from home orders in 2021, even with the highly contagious BA variants spreading globally, few (9%) believe a Covid disruption will present a risk in the second half of the year.
Value continues to shine
One of the key trends to emerge out of pandemic-driven disruptions has been the outperformance of value stocks. Low rates and low volatility had provided a rising tide in which virtually all stocks excelled over the past decade. As a result, it was harder to find underpriced stocks.
Now, with rates on the rise and volatility back in earnest, value strategies have outperformed growth. Almost six in ten (58%) believe the run will be extended for at least a few more months, while one-quarter (24%) think value will be on top for a few more years. Less than one in five (19%) think the value trend has already run its course.
“The opportunity set is shifting rapidly. The new environment is creating idiosyncratic opportunities that are more attractive investments than the broader indices. These opportunities can be found across multiple sectors,” said
1 Source: “Crude OIL” Crude Oil - 2022 Data - 1983-2021 Historical - 2023 Forecast - Price - Quote - Chart, Trading Economics, https://tradingeconomics.com/commodity/crude-oil.
Bond markets
One of the biggest changes to the investment landscape over the first six months of 2022 has been the slow and steady increase in interest rates, with bond yields following in step. After closing out 2021 at 1.512, a series of rate hikes - including a surprise 75 basis point hike in June – put yields at 2.975 on
Underscoring just how closely they will be watching central bank policies in the second half, 73% of those surveyed believe there will be more increases: 36% believe US Treasuries will finish the year somewhere between 3% and 3.5%. The same number anticipate even more hikes and forecast rates reaching above 3.5% by year’s end.
“This year, the global bond markets suffered unprecedented losses, and few people would have ever thought of bonds as unprotected money. But there are signs that we’ve passed the high of inflationary pressures, and now is the time to find the opportunities out there, for instance in financials, energy and industrials,” said
What it all means
As strategists view this new fixed-income landscape there is no clear consensus on what it means for investors. Rate hikes may continue to depress bond values according to 27%, creating attractive opportunities for those who know where and how to look. Those taking the cue from the 27% who say it’s time to start buying bonds again may want to consider the advice of the 24% who say that at times like this credit quality will matter more than duration.
The end of an era
Strategists see a world that has changed dramatically in the past six months. After a decade in which the easy money provided by quantitative easing, low rates, and low inflation propelled markets to positive gains in seven out of ten years, the world is moving on. This next normal is marked with greater volatility and greater uncertainty. The big question for most investors may well be how long will it last?
The full survey report can be found here: https://www.im.natixis.com/us/markets/the-end-of-easy-money.
About the Natixis Strategist Outlook
-
Jack Janasiewicz , CFA®, Portfolio Manager and Portfolio Strategist,Natixis Investment Managers -
Garrett Melson , CFA®, Portfolio Strategist,Natixis Investment Managers -
Chris Sharpe , CFA®, Chief Investment Officer and Portfolio Manager,Natixis Investment Managers -
Dirk Schumacher , Head ofEuropean Macro Research , Natixis Corporate & Investment Banking -
Cyril Regnat , Head of Research Solutions, Natixis Corporate & Investment Banking -
Troy Ludtka , US Economist,Cross Asset Research , Natixis Corporate & Investment Banking -
Benito Berber , Chief Economist forLatin America , Natixis Corporate & Investment Banking -
Michael J. Acton , CFA®, Managing Director, Head of Research,AEW Capital Management -
Hans Vrensen , CFA®, MRE, Managing Director and Head of Research & Strategy, AEW Europe -
Kathryn M. Kaminski , PhD, CAIA, Chief Research Strategist, Portfolio Manager,AlphaSimplex Group -
Alexander Healy , PhD, Chief Investment Officer and Portfolio Manager,AlphaSimplex Group -
François-Xavier Chauchat, Global Economist and member of the Investment Committee,
Dorval Asset Management - Jean-Charles Mériaux, Chief Investment Officer, DNCA Investments3
-
Isaac Chebar , Fund Manager, European Value Equity, DNCA Investments3 -
Carl Auffret , CFA®, Fund Manager, European Growth Equity, DNCA Investments3 -
Michael Buckius , CFA®, President and Chief Investment Officer,Gateway Investment Advisers -
Adam Abbas , Portfolio Manager and Co-Head of Fixed Income,Harris Associates -
James Grabovac , CFA®, Vice President, Investment Strategist, Municipal Fixed Income Team,Loomis Sayles -
Brian P. Kennedy , Vice President, Portfolio Manager, FullDiscretion Team ,Loomis Sayles -
Lynda L. Schweitzer , CFA®, Vice President, Portfolio Manager,Co-Team Leader of Global Fixed Income Team,Loomis Sayles -
Craig Burelle , Vice President and Senior Macro Strategies Analyst,Loomis Sayles -
Elisabeth Colleran , CFA®, Vice President, Portfolio Manager, Emerging Markets Debt Team,Loomis Sayles -
Lynne Royer , Vice President, Portfolio Manager, Co-Head of DisciplinedAlpha Team ,Loomis Sayles -
Jens Peers , CFA®, CEO and CIO,Mirova (US)4 -
Amber Fairbanks , CFA®, Portfolio Manager, Global Equity,Mirova (US)4 -
Rafael Calvo , Managing Partner, Head of Senior Debt and Co-Head of Origination, MV Credit -
Carmine de Franco , PhD, Head ofFundamental Research , Ossiam -
Axel Botte , Global Strategist,Ostrum Asset Management -
Stéphane Déo, Head of Markets Strategy,
Ostrum Asset Management -
Ibrahima Kobar , Chief Investment Officer,Ostrum Asset Management -
Frank Trividic , Deputy Chief Investment Officer,Seeyond -
Nicolas Just , CFA®, Deputy CIO and CEO,Seeyond -
Mounir Corm , Deputy Chief Executive Officer and Founding Partner,Vauban Infrastructure Partners -
Chris D. Wallis , CFA®, CPA, CEO, CIO, Senior Portfolio Manager,Vaughan Nelson Investment Management
About the
About
Natixis Investment Managers’ multi-affiliate approach connects clients to the independent thinking and focused expertise of more than 20 active managers. Ranked among the world’s largest asset managers1 with more than
Headquartered in
Natixis Investment Managers’ distribution and service groups include
1 Cerulli Quantitative Update: Global Markets 2021 ranked
2 Assets under management (“AUM”) of current affiliated entities measured as of
3 A brand of
4 Operated in the
CFA® and Chartered Financial Analyst® are registered trademarks owned by the
4859355.2.1
src="https://cts.businesswire.com/ct/CT?id=bwnewssty=20220720005216r1sid=acqr8distro=nxlang=en" style="width:0;height:0" />
View source version on businesswire.com: https://www.businesswire.com/news/home/20220720005216/en/
Press:
508-523-4067
[email protected]
Billie Clarricoats (
+44 7880195672
[email protected]
Source:
CPA Liability Insurance Market Growth Holds Strong; Key Players Studied
Over 60% of adult children say inflation is hurting their senior parents, according to AAG Survey
Advisor News
- Inflation Reduction Act may have little impact on inflation
- SEC obtains judgment against broker charged with defrauding clients
- Here's one reason why America's racial wealth gap persists across generations
- Ken Morris: Before you retire early, ask yourself a simple question
- Half of Kansans have no retirement savings. This statewide program is a no-brainer
More Advisor NewsAnnuity News
- Global Atlantic announces $10B group annuity reinsurance deal with Equitable
- Colorado adopts new annuity sales regulations
- National Western Life introduces new fixed indexed annuity, NWL New Frontiers
- Jackson National announces second quarter 2022 results
- Brighthouse Financial adds to Shield Level annuity suite with new product
More Annuity NewsHealth/Employee Benefits News
- Higher out-of-pocket patient bills are hitting hospitals hard
- Best’s Commentary: Inflation Reduction Act will benefit U.S. health insurers
- Virginia Obamacare rates set to fall next year
- Colorado workers, employers to begin paying 0.45% of wages for voter-approved paid leave program
- Connecticut insurers defend rate hike requests during public hearing
More Health/Employee Benefits NewsLife Insurance
- Sammons names Tyler Brown new government affairs director
- Alex Murdaugh petitions to delay Mallory Beach trial amid murder charges
- Sales of life combination products rebound in 2021, LIMRA reports
- Integrity Marketing Group acquires Richman Insurance Agency
- How to get the most out of Life Insurance Awareness Month
More Life Insurance