Chronicles: Issue 23, January 2022

It’s everyone’s favorite time of year – forecasting season. Record low interest rates, record high inflation (in recent history), and unprecedented monetary and fiscal policy have made the job of the capital allocator very difficult. Oh, and the global pandemic has moved into its third calendar year in case you had forgotten.

This edition of Chronicles of an Allocator focuses on some of the most interesting forward-looking pieces we’ve seen to start off 2022, after the manic year that was 2021. Before we get started, I’m excited to hand the opening bid to Paisley Nardini, CFA, CAIA of Invesco to talk about how they’re looking at capital markets at the beginning of the year.

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Paisley Headshot3

After COVID pushed the global economy to the brink, 2021 seemed rather uneventful – relatively speaking, of course. The year was characterized by a familiar rhetoric: divergent global equity returns (US continued to dominate), low bond yields (with talks of imminent rate hikes), continued COVID related health-stress, and all of us wondering when life will go back to “normal.”

There was one defining characteristic that left an impression on us, a new buzzword from which we could begin to assess the evolving landscape of our times: inflation. The unanswered question heading into 2022 and defining investor allocations is whether we can put a cap on rising prices or if Mr. Inflation will be the one that got away.

According to Invesco’s 2022 Asset Allocation outlook, the year ahead is shaping up to be characterized by not only inflationary pressures, but also by a deceleration of economic growth as fiscal and monetary policy is removed. Those double-digit returns we’ve been experiencing across assets classes may be a relic of the past. Invesco’s base case, supported by the Global Market Strategy team, is optimistic that the near-term, skyrocketing prices should peak mid-year, continuing to support inflation-hedging real assets (real estate/commodities) as well as higher growth assets such as equities.