While the combination of a strong economic recovery and accommodative monetary policy has fuelled healthy returns for many investors over the past 18 months or so, we think that the macroeconomic backdrop is now becoming more challenging. We still expect the economic recovery in the US to continue, but think that growth will fall short of expectations there, at the same time as it continues to lose momentum in China. Meanwhile, we suspect that the recent jump in inflation in the US will prove to be more persistent than most anticipate. As investors take note of this inflation, we forecast that the returns from most “safe” assets will be quite limited. Although we still project that “risky assets” will make gains, higher valuations and our view that global growth will underwhelm suggest to us that the returns over the next couple of years will generally be far less impressive than they have been since Q2 2020.
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