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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
All eyes on inflation lately. US headline inflation, as measured by the Consumer Price Index (CPI), hit an eye-popping 9.1% year over year for June 2022, its highest level since 1981. The following month, it fell to 8.5% year over year, aided by some near-term energy price relief and improved supply-chain conditions, and may well have peaked for 2022 — a welcome respite for consumers and businesses feeling the pinch of today’s elevated prices. The US Federal Reserve’s (Fed’s) commitment to raising interest rates has pushed inflation expectations down as well (Figure 1), leading to a pause in the recent outperformance of inflation-sensitive assets.
However, we are not out of the woods by any means. Core US inflation (ex-food and energy prices) remains uncomfortably high at around 6%, with a broad number of contributors across the underlying subcategories. Better-than-expected jobs growth and historically low unemployment have also driven labor costs up sharply. More to the point, we think the structural inflation story 2022 began with is far from over. With that in mind, we believe now may be an opportune time for investors to add real-asset and inflation-sensitive exposures to their portfolios.
With inflation expectations down and a global recession now baked into many economic forecasts, natural-resource equities and commodities struggled in June and the first half of July, before rebounding over the last month. We believe the structural supply challenges for these sectors are still in place and will remain important return drivers going forward:
Our bullish case for inflation-hedging assets has been consistent since early 2021 and is essentially intact as of this writing:
1Roll yield is the amount of return generated in a commodities futures market after an investor “rolls” a short-term contract into a longer-term one and profits from the convergence of the futures price toward a higher price.
Still waiting…Fed wants more data before cutting policy rates
Continue readingAre US election probabilities now a critical driver of bond yields?
Continue readingBreaking concentration: big picture thinking with small-cap equities
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We outline why we think the new economic era is elevating the role of bonds as a source of attractive and stable income, downside protection and portfolio diversification.
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Our expert dives into Fed policy following the July FMOC meeting.
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Our expert argues that the US election remains a critical catalyst for the bond market given the contrast between both parties as it relates to supply side policies such as trade and immigration, and to policy differences around taxation and regulation.
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How to overcome the risks associated with today's concentrated market? Investment Director John Mullins explores why small-cap equities could be part of the answer.
All-time highs and CPIs: What comes next?
Global fundamentals have kept markets content so far this year, but will politics sour the mood? Members of our Investment Strategy & Solutions Group offer their views on the second half of 2024, including on equities, bonds, and commodities.
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Has the European credit cycle been extended?
2024 has kept fixed income investors busy. Yet, despite lingering inflation and rate volatility, European credit markets have remained strong. Are we looking at an extended credit cycle? And if so, what does this mean for investors?
The revenge of the monetarists
Fixed Income Portfolio Manager Brij Khurana makes the case for a monetarist explanation for moderating inflation.
Global Economic Outlook
Our macro strategists continue to expect that the interlinkages between countries, central bank policies, and market pricing will change, creating potentially attractive opportunities for active portfolio management and security selection.
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