Investors may be making wrong forecasts about the path of inflation, monetary policy and corporate earnings. Lisa Shalut, chief investment officer and director of asset management at Morgan Stanley, discusses what it could mean for the markets.
Inflation will soon start to cool down
“We should not rule out the potential for persistent inflation. Rents continue to grow and inflation in service businesses, especially those related to travel, is significant. In addition, the escalation of the conflict between Russia and Ukraine leaves little room for relief in rising energy, metals and food prices, while new COVID-related lockdowns in China are reigniting related price increases. with the supply chain.
Earnings growth will continue to be strong
“We believe that pressures on corporate profits continue to grow and current profit margin expectations may be too optimistic. Costs continue to rise and inventories now exceed new orders. The inflationary environment may be eroding consumer purchasing power, particularly for low-income households. The strength of the US dollar also creates obstacles for exporters and puts pressure on the value of income obtained from international markets.
US stocks must be the best place to invest
“Valuations are rich today in a time when growth is slowing and politics are tightening. Markets elsewhere may provide a more attractive relative value. In regions like China, stocks trade at rock-bottom valuations in the face of recessionary conditions. As for emerging markets, commodity inflation headwinds may ease, while expectations are modest and currencies may also strengthen. In Europe, a more dovish central bank, combined with possibly more consistent fiscal policy responses in the aftermath of the military conflict, could support a recovery.”
Source: Fx Street
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