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Tuesday 31 May 2022
Global Investment Views, Equity, Fixed income
June 2022 | High inflation, the ongoing conflict in Ukraine, slowing economic momentum and the COVID-19 lockdowns in China are causing volatility in the markets. This is happening at a time when forward earnings multiples have contracted from the levels seen last year, amid higher inflation and rates expectations. Increasing stagflationary risks and still-present geopolitical tensions suggest investors should maintain or even increase hedges.
01 | Amundi Institute Insights: Budget deficit reductions will be accompanied by diminished household savings and greater pressure on corporate profits. On the monetary side, we're witnessing the end of ultra-cheap money.
02 | Fixed Income: The repricing of a more aggressive Fed stance has been brutal, and rates are now at a level that could call for a recalibration of asset allocations.
03 | Equity: Overall, the focus on valuations remain key, as the expensive areas of the market will remain under pressure. Our overall approach remains that of selection, with a focus on earnings sustainability beyond the near term.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of May 26, 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.
Dramatic price action has taken place over the past weeks in equities and bonds, following hot inflation prints, central bank actions and rising concerns over economic growth. Against this still highly volatile backdrop, investors should stay diversified and avoid adding risk as the market repricing, although advanced, is not over yet. This is the time to move towards high-quality areas and resilient business models that can preserve margins.
As we depart an era of low inflation and easy access to capital and enter a period marked by higher inflation, higher commodity prices, and higher interest rates, we believe the market has already begun to rotate out of the narrow cohort of mega-cap growth stocks that have been leading the market. We believe active managers may benefit from this shift as excessive concentration levels in US equities unwind, providing greater market breadth.
We are witnessing significant divergences in the economic outlooks and in market performances. From an investment standpoint, while investors should maintain a neutral risk stance, there is room to play these divergences across the different asset classes. While short-term inflation may start to decelerate, the long-term view is increasingly showing that sticky inflation remains high in light of geopolitical risks and the supply chain stress amid Shanghai’s lockdown. The US economy remains solid while the Eurozone is the most exposed to stagflationary risk. We will most likely see at least a short-lived recession in the second half of 2022, triggered by Germany and Italy, while France and Spain might show some resilience.
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