Financial Industry Insights from Advisors Asset Management


2022 Investment Outlook: The Confluence of Weather & Climate

After a tumultuous data deluge over the last two years, 2022 may begin to see the economic silt settling a bit, even as the waves of reaction to uncertainties continue. Looking forward, we expect continued growth, albeit at a more stable and more subtle rate, which could have substantial impacts on markets and investor reactions. Inflation will likely be at elevated levels longer term, but some significant volatility is possible as certain supply chain constraints and distribution clogs begin to unwind and supplies of goods return to a more normalized level. While potentially not a glut, it may be perceived as much coming from the exacerbated low levels due to the pandemic.

The culmination of economic data points indicate that we are mid cycle versus late cycle. This should allow the Federal Reserve and other central banks to focus on their primary mandates, including inflation, growth, and employment. While this could mean an increased parsing of the actions and statements from the central banks, ultimately, we anticipate the bond markets will begin to price in slower growth as well as the potential impact a permanence in inflation levels may have on the everyday consumption of products. Looking forward, we expect an elevated level of inflation relative to the target range the Federal Reserve has stated publicly for many years, though some of the increases may be absorbed by the high level of existing liquidity.

We have long believed the markets which are ripe for significant turning points show changes to liquidity and leverage, which traditionally have an inverse relationship. Given high levels of cash held by both households and corporations, some of these higher inflationary costs have been able to be passed-through so far. So, while we expect gross margins for companies to be somewhat stable, there could be pressure, indicating corporate earnings may rise in 2022, but not at the pace witnessed the last year.

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CRN: 2022-0105-9684 R

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