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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
All eyes on inflation lately. US headline inflation, as measured by the Consumer Price Index (CPI), hit an eye-popping 9.1% year over year for June 2022, its highest level since 1981. The following month, it fell to 8.5% year over year, aided by some near-term energy price relief and improved supply-chain conditions, and may well have peaked for 2022 — a welcome respite for consumers and businesses feeling the pinch of today’s elevated prices. The US Federal Reserve’s (Fed’s) commitment to raising interest rates has pushed inflation expectations down as well (Figure 1), leading to a pause in the recent outperformance of inflation-sensitive assets.
However, we are not out of the woods by any means. Core US inflation (ex-food and energy prices) remains uncomfortably high at around 6%, with a broad number of contributors across the underlying subcategories. Better-than-expected jobs growth and historically low unemployment have also driven labor costs up sharply. More to the point, we think the structural inflation story 2022 began with is far from over. With that in mind, we believe now may be an opportune time for investors to add real-asset and inflation-sensitive exposures to their portfolios.
With inflation expectations down and a global recession now baked into many economic forecasts, natural-resource equities and commodities struggled in June and the first half of July, before rebounding over the last month. We believe the structural supply challenges for these sectors are still in place and will remain important return drivers going forward:
Our bullish case for inflation-hedging assets has been consistent since early 2021 and is essentially intact as of this writing:
1Roll yield is the amount of return generated in a commodities futures market after an investor “rolls” a short-term contract into a longer-term one and profits from the convergence of the futures price toward a higher price.
US regional banking sector updateContinue reading
Economic and market forecast in six chartsContinue reading
Commercial property values shrinking? No problem for big citiesContinue reading
Why cash won’t cut it for long: The case for bondsContinue reading
What AI could mean for fixed incomeContinue reading
US loses its AAA rating (again)Continue reading
Chair Powell maintains optionalityContinue reading
US regional banking sector update
We explore how banking regulation and legislation could impact US regional banks, including highlighting the potential for M&A activity and for dispersion to drive long/short opportunities.
Economic and market forecast in six charts
This visual summary of Wellington Management’s 2023 Outlook captures insights on economic and market forces shaping investment results from specialists from across our investment platform.
Commercial property values shrinking? No problem for big cities
We analyze the impact of declining office property values and outline the reasons why they believe large cities should be able to weather the storm of shrinking commercial property value.
Why cash won’t cut it for long: The case for bonds
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
What AI could mean for fixed income
Fixed Income Portfolio Manager Brij Khurana details the potential effects of artificial intelligence on the fixed income market.
US loses its AAA rating (again)
US Macro Strategist Michael Medeiros analyzes Fitch's recent downgrade of US credit quality and explores the bigger issues at play.
Chair Powell maintains optionality
Fixed Income Analyst Caroline Casavant shares what she thinks matters most for investors in light of the latest interest-rate hike from the Fed.
The great American labor shortage: Causes, consequences, and solutions
Shifting demographics suggest that US labor markets will remain tight in years to come, with major implications for income inequality, investment spending, and government policy.
A test for the global economy
What are the similarities and differences between the US regional banking crisis and 2008's global financial crisis? How likely is a recession? Should investors be focusing on value or growth? In this podcast, Macro Strategist Nanette Abuhoff Jacobson shares her interpretation of where the economy is headed, outlining where the risks and opportunities may lie for investors in the next 12 months.
State of the credit markets: Does cash rule everything around us?
Fixed Income Portfolio Manager Brij Khurana outlines the state of the credit market today, compares historical periods of quantitative easing, and warns credit investors of cash scarcity in the near future.
New market regime, a new environment for global equities?
Global Equity Strategist Andrew Heiskell characterizes the new market regime, makes a case for shelving the old investment playbook, and shares potential investment implications for equity markets.