by David Picton and Team, Picton Mahoney Asset Management
Overview
Economies and markets seem to be transitioning from a high-growth, early-cycle recovery stage to a slower-growth, middle-cycle environment. In the past, this transition period of decelerating – but still positive – economic growth has often been accompanied by corrections in risk assets and changes in sector leadership, and some of this was seen to occur during the third quarter. The delta COVID variant, China’s slowdown and inflation concerns contributed to significant turmoil below the surface of equity markets, creating a set-up for a bounce-back in more value-oriented/reopening plays in the near term. Stock markets and the global economy will likely continue to be buoyed for the next couple of years, given the backdrop of generally stimulative conditions, significant pent-up demand and low interest rates around the world. As COVID and supply chain issues ease around the world, inflationary pressures are expected to diminish somewhat over the next few quarters. However, inflation will likely be a key risk factor to monitor later in 2022, when base effects and supply chains normalize, and a truer gauge of pricing pressures emerges.
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