Yes. The hawkish Federal Reserve and energy market challenges have contributed to a strengthening of the US dollar in recent quarters, and we expect that trends in both factors may continue to be supportive of the dollar in the short term. Nonetheless, on a longer horizon, historical precedents suggest that the dollar is approaching the end of a multiyear bull run.
Currently, there is an active debate about whether the United States is in a recession. Two quarters of negative GDP fits one definition of a recession; however, the National Bureau of Economic Research looks at a greater expanse of data before making its assessment. In this note, we examine some of this data, dig into other line items in the national accounts, and look at historical trends in employment around recessions to further our understanding and put today’s labor market into context.
Fiscal year 2022 was a challenging one for public market investments. Rising levels of inflation across most developed and emerging markets saw central banks become more aggressive in their monetary tightening plans. This in turn saw correlations between bonds and equities become positive; bonds declined as a direct result of higher inflation and tighter policy, while equities weakened in response to the higher cost of capital. This chart book presents returns and other market metrics for fiscal year 2022.
The European Central Bank raised its policy rates by 50 basis points, including its deposit rate, which is now 0%, to address high inflation levels in the bloc.
The Federal Reserve announced that it was raising the target range for the Fed funds rate by 75 basis points to 1.50%–1.75% and made wholesale changes to its summary of economic projections.
The ongoing war in Ukraine has exerted a material impact on both global economies and markets, primarily via a steep increase in commodity prices, especially energy. Europe has been particularly affected due to its geographical proximity and the resultant dependence of many of its nations on Russian fossil fuels. This chart book reviews the hit to European growth associated with the war in Ukraine.
Global equities tend to sell off following major geopolitical events, but such declines have historically been mild and short-lived, far below the 20% drawdown threshold that is typically considered a bear market.
The global economy continued its road to recovery in 2021, as the most severe economic impacts of the COVID-19 pandemic gradually receded. There were fresh waves of infection during the year, but the public health actions taken to counter them were less economically damaging. In the meantime, fiscal and monetary policy remained at extremely accommodative levels, supporting strong risk-asset performance.
Even as broad equity indexes remain close to their all-time highs, the proportion of stocks in their own ‘bear market’ has recently increased, particularly among speculative growth stocks.
This week, the Federal Reserve, the Bank of England, and to a lesser extent the European Central Bank all acted to tighten monetary policies. These tightenings came as inflationary pressures have surged in many countries and as other central banks have looked to rein in simulative policies. But, when combined with above-trend growth expectations next year and central banks’ likely cautious tightening approach, we suspect financial conditions will likely remain accommodative and supportive of risk assets.