Two years have passed since Covid-19 emerged on the world scene. The appearance of the more transmissible Omicron variant reminds us that the pandemic is, sadly, not over.
High vaccination rates make a return to a deep and prolonged lockdown unlikely, though, and global activity measures have made the round trip back to their pre-pandemic levels. What’s different are policy settings and inflation dynamics. Our base case is that loose policy keeps global growth strong in 2022, while inflation drops from its highs as supply chain disruption eases. This backdrop should be positive for stocks, despite a gradual tightening of policy. We see clear two-way risks to growth and to financial markets, however. Broad diversification across asset classes and active management, both between them and within them, will be key to navigating the challenges ahead.
The longest US business expansion on record was followed by its shortest and most unexpected recession as the pandemic hit, with global activity plummeting and stocks suffering their worst crash since 1929. Massive policy support and the rapid development of vaccines have turned things around remarkably quickly, with economies broadly back to pre-pandemic levels and global stock market indices significantly higher.
The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.