Late cycle “vibration.” This was the term I used at the start of the year to describe my outlook for the first half of 2022. As we enter the second quarter, the bearishness is palpable – and rightfully so. Inflation continues to run at levels not seen in two generations, forcing the Federal Reserve into rapid tightening. The war in Ukraine rages on while China’s Zero COVID Policy threatens global economic growth. Investors searching for certainty over the next few months are likely to come up empty-handed.
The news is not all dire. Despite inflation and global economic uncertainty, estimates for earnings over the next two years continue to be revised upward. Companies have been able to ride the wave of high nominal GDP growth and operating leverage to impressive results. In the short-term, we are likely to see a debate within markets over the durability of earnings into the second half of the year. Beyond the current market debate, we strongly believe it is time that investors begin to think about what’s next. The global order that has governed for the past two decades is ending, and new paradigms are emerging – ones that are likely to provide fertile ground for dynamic investors.