The prospects we expect

Chart of the week from DWS. Our baseline scenario forecasts attractive return prospects over a 12-month horizon. But nothing is won in advance.


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As you try to understand today’s markets and where they will be 12 months from now, you may encounter a number of contradictions: First, equity funds have accumulated liquidity at record levels1but individuals hardly seem to be cashing in on it at this time2.Fund managers haven’t been this concerned in a long time3although many asset classes have already risen at record speed or size: stocks, bonds and crypto assets alone have collectively lost around $30 trillion.4 value since the beginning of the year. Finally, quarterly results were resilient in some cases, particularly in Europe, and annual earnings forecasts were even revised upwards.

At the same time, equity index targets and economic growth forecasts were revised downwards. Year-to-date GDP growth for 2022 alone has been revised down from 3.9% to 2.7% in the US and from 4.2% to 2.7% in the eurozone.5. Record inflation rates continue to climb from record to record, but market expectations for long-term inflation are slightly down. Paradoxes aside, as always with a 12-month forecast, investors should ask themselves: What issues currently dominating the market might persist over the next 12 months?

The greatest threat to markets is not war, but the thorny dilemma of central banks.

DWS’ new 12-month outlook, some of the most important of which are presented in our ‘Chart of the Week’, reflects this remarkably mixed picture. We believe that the various hurdles will keep the markets in suspense for some time and that volatility will therefore remain high. However, we bet that 12 months from now, on the next 12-month horizon, there will be less ambiguity on a certain number of issues. Then we expect double-digit return potential for equities and an upswing for corporate and emerging market bonds. However, this presupposes that the threatening recession in the USA does not materialize and that a possible halt to Russian energy exports does not upset the European economy this year.

China’s handling of COVID, the war in Ukraine and global supply bottlenecks will hopefully have lost some of their clout by then. However, without a doubt, the greatest threat to markets for the foreseeable future is not war, but the thorny dilemma facing central banks. Inflation forces them to raise interest rates when the economy deteriorates. Markets are understandably nervous. The Fed cannot bail them out in this environment. The only hope is that inflation will come down soon and growth will continue, so the lack of support from the Fed will not be a big problem.

Economic and market forecasts by DWS

Horizontal: Forecast
GDP growth 2022 (compared to the previous year in %)
Consumer price inflation 2022 (yoy in %)
Reference interest rate (June 2023)
10-year government bond (June 2023)
Action (June 2023)

Source: DWS Investment GmbH, as of May 12, 2022

1 Bank of America, Fund Manager Survey, May 17, 2022
2 Deutsche Bank Research, Investor Positioning and Flows, May 13, 2022
3 https://www.aaii.com/sentimentsurvey
4 Measured as the market capitalization loss of the relevant indices from the beginning of the year to 12 May. Equities: MSCI AC World (loss of $16.5 trillion), Source: Bloomberg; Bonds: Bloomberg Global Aggregate Index percentage loss relative to the broader bond universe as defined by the Bank for International Settlements (3Q21), (loss: $15,000 billion); Cryptos: Market capitalization of all almost 20,000 traded crypto “currencies”, source: coinmarketcap.com (loss: 900 billion USD).
5 Bloomberg consensus as of 5/18/22.

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