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June 2022

MARKET PULSE | June 2022

Macro Views


US financial conditions have tightened 180 bps since the start of the year, suggesting an equivalent ~2pp drag on US GDP growth in the year ahead. While positive tailwinds from normalizing imports and continued service sector reopening may partially cushion the impact, we expect US GDP growth to decelerate to 2.5% in 2022. Meanwhile, in China, policymakers must carefully balance their growth objective with their zero COVID 19 policy amid ongoing housing and external demand weaknesses. We now expect 2022 Chinese GDP growth to slow to 4.0%. Read More


We forecast US Core PCE of 3.9% by 2022YE based on three potential drivers: 1) supply constrained durable goods inflation falls to zero on net, 2) shelter inflation peaks, and 3) service inflation lessens via firm, but sustainable, wage growth. Still, the range of outcomes likely remains wide. In the Euro area, we now expect core HICP inflation to end at 3.3% on high energy prices, wage pressures, and euro weakness. Read More

Monetary Policy

We expect the Fed to deliver on current market pricing of Fed rate hikes to restore labor market balance and temper wage price pressures. The Euro area inflation path is increasing pressure on the ECB to accelerate rate hikes despite weaker growth. We expect the first ECB rate hike to be delivered in July. Read More


US job openings have continued to outpace unemployed workers at nearly 2:1. We expect US growth deceleration to reduce openings most notably for cyclically sensitive industries. Still, a sharp rise in the unemployment rate may likely be avoided given the strength of both household and corporate balance sheets. Our year-end US unemployment rate forecast is 3.5%. Read More

Market Views


We expect equity prices to move higher, though further rate upside and even slower growth have led GIR to revise their S&P 500 year-end price target down to 4300. Still, we think earnings strength will continue as companies navigate tighter financial conditions and defend margins, informing our upgraded 2022 EPS growth forecast of 3pp to 8%. Read More


GIR raised their YE 2022 forecast for the US 10-Year Treasury yield to 3.3%, reflecting more front loaded hikes, higher terminal rate and reemergence of risk premia. Still, we think the tail risks remain wide with continued macro uncertainty. We find increasing comfort with duration as the hurdle remains high for additional outsized surges in yields. Meanwhile, the short-end of the curve may offer attractive yield per unit of risk while also providing a sizeable buffer to more rate hikes. Read More


Similar to most high quality fixed income asset classes, municipal bonds have suffered significant negative returns and have underperformed Treasuries year to date. However, we think the technical backdrop may be on the verge of a turnaround as the summer redemption season nears. Credit quality remains intact, with key sources of revenue, including federal support, remaining strong. Read More


Risk-off sentiment has captured financial markets, leaving few asset classes unscathed. Volatility is likely to continue given macro uncertainty and diminished liquidity—S&P 500 futures top of book depth is in the 3rd percentile since 2016. While the S&P 500 briefly entered bear market territory, history suggests that 69% of the index’s best days have come when the market was below its 200-day moving average. Read More

TINA Turning

The last market cycle was characterized by trend growth, low rates, and yield scarcity, conditions that led investors to believe that favorable risk-adjusted returns could only be found in equities. While risk assets remain instrumental to delivering forward returns, we believe market characteristics today—reflation, high valuation, rising rates—support the case for broadening opportunities to fixed income. Across the bond complex, risk symmetry has improved, yields have risen by nearly two-fold, and coupons have reset to normal levels, all enhancing the relative value of bonds to equities.

Market Pulse June 2022: TINA Turning


Absolute yields across credit sectors have also reset to higher levels, lowering the hurdle for the global search for yield. We believe this presents a catalyst for investors to rotate back into income. For corporate and municipal bonds, attractive yields have also been met with a sturdy foundation to navigate macro uncertainty through healthy revenues, liquid balance sheets, and low defaults.

Source: Bloomberg and Goldman Sachs Asset Management.

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