In his recent Top of Mind publication, Multi-Asset Strategist Adam Berger contemplated a series of potential macro and market outcomes, on topics ranging from inflation to an equity bear market to regulatory risk in China.
One what-if scenario — a Russian invasion of Ukraine — has of course already unfolded before us. Adam believes geopolitics will be a meaningful source of volatility in the near term, but the bigger risk of the conflict — for markets — may be that the inflationary impact of rising energy prices and the growth impact of sanctions will make it harder for the Federal Reserve and other central banks to navigate policy and engineer a “soft landing” in the economy. He remains optimistic that policymakers can adjust both policy and rhetoric to slow inflation without cutting off growth, but there is undoubtedly more risk than there was in late 2021. For more insights on the Ukraine situation, visit our collection of content, which we’re updating regularly
Below, Adam follows up with quick takes on 10 additional topics asset allocators have asked about, including labor shortages, cryptocurrencies, the IPO market, and long-term capital market assumptions.
1. What if we continue to see a lack of participation in the labor force?
I see this as a real risk in the near term, although I think it will abate in time. Weak US labor supply could come from a combination of baby boomers who may have used COVID as a reason to retire earlier than planned; younger workers who use their stimulus checks to take some “time off”; and perhaps others who adjust the nature of their work after an extended “hybrid” or “work from home” COVID experience. In addition, my colleague Macro Strategist Mike Medeiros has noted that along with these COVID-related/cyclical factors, there are some structural factors at work, including an immigration shortfall of about 3.2 million workers over the past five years.
This combination of factors may drive wage inflation in the near term, but in the longer term, I suspect there is a deep pool of “shadow” workers (including, perhaps, some “retired” baby boomers) who will reenter the labor force if wages rise or their cost-of-living increases (or both).