First Quarter 2022
Slowing growth in a mid-cycle expansion
We think the current environment is following a classic investment cycle pattern, which is something we have not seen for more than a decade.
The current cycle is following the pattern that leads us to believe that global economies in 2022 will be in a mid-cycle expansion. This would imply continued growth and economic expansion, growing earnings, rising inflation, rising rates and real assets like property/REITS, and commodities and alpha generators like alternatives. In this environment of rising interest rates, fixed income is likely to face headwinds.
This is a straightforward takeaway from the current cycle and a fairly consensus view. But since investors have not seen a classic cycle in over a decade, we suspect there is a lack of conviction in this view. In the cycle from 2008 to 2019 the growth and inflation environment was very subdued, and it took many years for interest rates to rise and the overall cycle was not in line with classic cycle theory. We suspect this has led many investors to not trust the classic investment cycle and the corresponding investment implications, just as the cycle is looking more classical than it has in a long time. We think investors should have conviction in the investment outlook and not get shaken out by risk on/risk off behaviour that has prevailed in the past decade.
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