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A stock market rebound makes little sense if a recession is nigh

The proximate cause of this week’s tentative rebound in the S&P 500 appears to have been a pull-back in Treasury yields. Yet their retreat has reflected concerns that the Fed will drive the economy into the ground in an effort to bring down inflation. Accordingly, it’s hard to envisage the stock market recovering much more ground if those worries continue to grow.

24 June 2022

Answering your questions on our market forecasts

We held a Drop-In on Wednesday to discuss what the evolving outlook for monetary policy and global growth means for our markets forecasts. This Update recaps the key questions we addressed in the Drop-In and answers several of the questions that we received but didn’t have time to answer during the event.

24 June 2022

Gilts to struggle sooner, equities to struggle for longer

We haven’t changed our forecast that the Bank of England will raise interest rates from 1.25% now to a peak of 3.00% by the middle of next year. But we do now think that a number of other central banks will raise interest rates faster and to higher levels to try and get on top of inflation. As a result of these global factors, we now think that 10-year gilt yields will rise from 2.35% currently to a peak of 3.00% by the end of this year rather than to 3.00% by the middle of next year. We also think the FTSE 100 will fall from 7,050 now to a trough of around 6,600 by the end of next year (rather than to a low of 6,800 by the middle of next year). In other words, rises in global interest rates and the toll they will take on activity will result in the prices of gilts falling faster and UK equity prices falling further and for longer.

23 June 2022
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Revisiting the case for US bank equity outperformance

The prospect of weaker economic growth has reduced the appeal of US banks’ equities, even though they may yet benefit from a renewed rise in long-dated Treasury yields and still appear relatively undervalued.

Start of a sustained rebound or just another bear market rally?

Despite today’s more than 2% gain in the S&P 500 at the time of writing, we doubt we have seen the bottom in the index given our views that the Fed’s tightening cycle is a long way from over and that the US economy will weaken. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

21 June 2022

Four reasons why we expect further falls in EM equities

We think that stock markets in the emerging world will continue to struggle alongside their developed market peers over the next eighteen months or so, for four main reasons. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

New forecasts for US Treasuries & the S&P 500

We think the sell-offs in US government bonds and equities have further to run, and have revised our forecasts for 10-year Treasuries and the S&P 500 accordingly. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

Hawkish CBs may cause equities to trough later than bonds

The willingness of major central banks in developed markets to tighten policy further and/or faster to best inflation has resulted in substantial weakness in equities over the past week or so, including a renewed slump today following some short-lived respite after the end of yesterday’s FOMC meeting. And while government bonds have rallied a bit since then, the bigger picture is that they have also suffered recently. A joint sell-off in equities and bonds has been a feature of much of 2022, resulting in a poor performance from a synthetic “60:40” equity/bond portfolio in the US, for example. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

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