Central banks and inflation are the two main actors in a play not seen in decades. After many unexpected twists and turns, inflation has continued to be a dominant theme, fueled by tight labor markets, supply chain dynamics, and geopolitical tensions. In the US, the Fed has credibly embarked on policy tightening to rein in price pressures. Elsewhere, other major central banks also stand ready to “catch” inflation, though with different policy paths relative to the US.
We believe the transition back to “normal” may not only invite continued market volatility but also potentially broaden investment opportunities, especially after valuation contraction in 1H 2022. We believe markets now offer a more compelling value proposition for long-term investors.
In this edition of the Market Know-How, we explore how investors may navigate the economic normalization, with emphasis on:
- Looking toward the destination, not the journey. While uncertainty may persist, strong fundamentals have strengthened the investment case within and across markets.
- Positioning for accelerated disruption. Consequently, we believe alpha may be better found in idiosyncratic, focused, and global portfolios.
- Elevating the importance of income to potentially better manage episodic volatility.
- Diversifying existing exposure with alternative investments to potentially access unique sources of returns and to reduce concentrated risks.
