Stock markets: not jubilant, but some signs of improvement

This monthly commentary gives a roundup of global markets and trends.

In this edition:

• Financial markets retain a cautious tone with equities and bonds dragged lower by accelerating inflation and rising interest rates
• The market uncertainty has seen a significant sector rotation, lower valuations and higher bond yields. Mega-cap US equity and long-dated government bonds have been hit particularly hard
• Asset managers have lifted their cash level to the highest level for 21 years [1]. There is now a risk that equities overshoot on the downside
• Much will depend on whether the Federal Reserve can engineer a slowdown in inflation without causing a recession. History is not on its side, with a ‘soft landing’ only achieved in three out of 12 previous tightening cycles [2]

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Sources

[1] BoFA Global Fund Managers Survey, If they can’t rally now, 17 May 2022

[2] The Fed’s Soft Landing Play, Gavekal, 10 May 2022