The post-Covid boom is almost certain to end in bust with central banks belatedly and aggressively raising interest rates to bring inflation back down.
The Investment Clock has been in Stagflation for the last nine months, a stage of the cycle that is bad for both stocks and bonds, but good for commodities. At some point, possibly quite soon if recent commodity price weakness persists, we may swing around to the next stage of the cycle: bond-friendly Reflation.
We’re expecting stocks to see a second phase of bear market driven by earnings weakness, with a trough likely only when unemployment rates are close to peaking, which could still be a year or more away. Broad diversification, active tactical asset allocation and disciplined downside risk management will be key to navigate the bumpy road ahead.
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.