The speed at which market narratives have changed together with the speed at which markets are discounting those changes helps one understand the cross asset sell off that was the 1st H of 2022.
As we think about the 2ndH we introduce Market Speed: the speed at which financial markets discount new narratives about the future. This new moniker joins: Covid Speed, Climate Speed and Conflict Speed in our speed lexicon.
Market speed is exacerbated by what Columbia Univ. history prof Adam Tooze calls a “polycrisis”, a multi faceted crisis born out of many smaller crises that few understand or can navigate. What the BIS calls “a combination of inflationary and recessionary forces that together with financial stability risks is historically unprecented”.
Such an environment drives investor apathy and illiquidity across assets thus exacerbating price volatility.
In addition to the speed of narrative shifts and market pricing we remain focused on what comes next: inflation, recession, stagflation? We expect inflation to soften & global growth to stabilize as the US slows and China recovers.
Our medium term view of a new, new world of high nominal growth led by a global cap ex boom & surging productivity to cope with the 3Cs of: Covid, Climate & Conflict remains intact. As such so does our Asset Allocation.