2022 Global Market Outlook – Q3 update: Fear of the known

Recession fears and central-bank tightening are driving market volatility. We think equity markets are oversold, and believe U.S. core inflation has likely peaked. In our view, this should help markets stabilize and possibly recover over the second half of 2022.

Key market themes

Markets have faced a laundry list of concerns this year, including new COVID-19 lockdowns and an economic slowdown in China, the Russia-Ukraine war, surging inflation and central-bank tightening. This has led to a tough first half of the year, with global equities down around 20% and the Bloomberg Global Treasury benchmark off 9%, as of mid-June.

Our composite sentiment index, which measures investor sentiment for the S&P 500® Index via a range of technical, positioning and survey indicators, reads as deeply oversold. This provides some reassurance that markets have accounted for the bad news so far and could recover if inflation and growth turn out better than currently feared. Of course, it’s possible that investors will panic and reach a sell-everything capitulation point. The lesson from previous market corrections, however, is that periods of panic can provide the best opportunities for longer-term investors.