December 2022 | Markets have seen some recent relief in a year that overall is likely to be remembered as among the most challenging for investors. This recent market move has been supported by an alignment of stars on various fronts: (1) US inflation on a downward path, wherein we believe the market rally and the exuberance is excessive, as the Fed will remain focused on the inflation target and it is too early to claim victory there; (2) The earnings season was bad but not as bad as feared; (3) China’s COVID-19 policy relaxation, which has happened earlier than expected, but full reopening will be in 2024; and (4) Geopolitical uncertainty, with regard to which there has been some pause after elections – in the US, the mid-terms saw no major surprises and were quickly digested by the market, which reacted well to a divided government that should deter populist policies.
01 | Amundi Institute Insights: A weaker-than-expected US Consumer Price Index (CPI) reading in October seemed to confirm that the inflation peak is likely behind us.
02 | Fixed Income: The Fed’s policy stance will center on concrete signs of inflation moderating, which requires a tightening trajectory and increases the risks of recession.
03 | Equity: Rising rates and decelerating growth are creating pressure on corporate earnings.
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