The economy: slowdown confirmed
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All data indicate a slowdown in the global economy and certain countries will register a contraction in Q4 2022.
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Whether a mere slowdown or a recession, the bottom line is that 2023 will be a year of low world growth, as the IMF recently confirmed.
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The impact will be highly disproportionate and, predictably, brief.
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As a result of the slowdown, inflation will trend downward in 2022, perhaps reaching 3% in the US and 5%-6% in Europe in 2023, depending on energy prices (war in Ukraine).
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The big issue at year-end is a possible moderation in central bank discourse in the medium term.
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Government debt stability and sustainability is once again at the forefront and will determine economic policy (United Kingdom).
Markets: an October rebound
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After an abysmal September, October offered some respite, especially for equity investors (MSCI ACW +4,06%) and, to a lesser extent, bond investors.
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Relief comes on two fronts:
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Hope of a forthcoming end to monetary policy’s contractionary cycle (macro).
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Corporate results generally healthier than feared in Q3 2022 (micro).
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The possibility that US interest rate hikes are drawing to a close prompts some investors to take precautionary investment positions.
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In October, EDM’s investment funds managed to shrink the price declines registered this year.
Investment policy: The future is always uncertain
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Many investors take refuge from the tremendous macroeconomic and geopolitical uncertainty and absent themselves from the market.
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In this respect, it is worth noting the title of this section and, more importantly, the impact on long-term results of missing the market’s most profitable days.
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Without joy but at odds with the prevailing pessimism, we must bear in mind that the top companies have published very strong profits and can be acquired today at prices discounted 25%-40% from earlier in the year.
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The disconnect between fundamentals and valuations creates a unique opportunity to build a portfolio of top-quality securities.
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A return to normal interest rates, the source of current volatility, offers investors/savers an opportunity after a decade of zero or negative returns. Great news!
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Despite rising yields, bonds will face an inflationary environment that will make it difficult to obtain positive real returns in the near future.
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- Market fluctuations due to unforeseen circumstances.
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