Our 2022 Outlook

2022 may be a year of two distinct halves, given the near-term certainty of the U.S. Federal Reserve increasing its target interest rate. During the first half, we expect to see a very favorable backdrop for risk assets, including real assets. We believe strong corporate earnings are likely to continue, as productivity gains driven by increased capital spending offset ongoing price pressures from rising wages and material costs. And even with the ongoing uncertainty around the pandemic, healthy savings, increased employment and higher wages should support consumer spending.

The second half is more uncertain—and may look very different. Our base case is for slowing but above-trend economic growth, moderating but above-trend inflationary pressures and higher real rates. We see this backdrop supporting real assets, albeit with more muted return potential and more elevated volatility than in 2021.

Last year was characteristic of a true economic recovery, with both equity prices and bond yields moving higher. Yet under the surface, markets experienced sharp rotations, large divergences and narrow breadth. We expect this dynamic to continue in 2022. We also are mindful of the possibility that tighter Fed policy could slow growth in the second half more than we currently expect. We are monitoring leading indicators for signs of this scenario, which could lead to lower interest rates and flattening yield curves, and pressure risk assets in the second half. Our outlook for real assets is informed by our top-down views on three key macroeconomic tenets. Read more on our outlook and views in the full white paper.

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