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Navigating the new market regime

Wei Li

Much has changed since our 2022 outlook - a war, energy shock and the Federal Reserve’s pivot on monetary policy.

Much has changed since our 2022 outlook - a war, energy shock and the Federal Reserve’s pivot on monetary policy. We stay underweight bonds, even as yields have sprinted upward, and overweight equities – with new regional differences.

A new market regime We see 2022 heralding a new regime by delivering global stock gains and bond losses for a second year – what would be a first since data started in 1977. This unusual outcome is the next phase of our new nominal theme that is still playing out: Central banks and bond yields have been slower to respond to higher inflation in the powerful restart than in the past. That should keep real, or inflation-adjusted, bond yields historically low and support stocks. The big change in 2022: Central banks will be withdrawing some monetary support as the restart does not need stimulus. We see more moderate equities returns as a result. We expect the Fed to kick off rate hikes but remain more tolerant of inflation. The Fed has achieved its inflation target, so its interpretation of its employment mandate will determine the timing and pace of higher rates. The European Central Bank, facing a weaker inflation outlook, is likely to stay easier on policy. We had flagged inflation - now we’re Living with inflation.

A restart like none other We’ve never had an economic restart like this. Add repeated, outsized data surprises to the mix – both to the upside and the downside – and confusion is natural among policymakers and markets adapting to a new reality. At the same time, central banks are implementing new frameworks that change how they react to inflation. The risks arising from new Covid-19 strains only add to the confusion. We cut through numerous possibilities to ask: What would it take for us not to be in this new market regime?

What could go wrong? We see two ways our new market regime view could be wrong. First, central banks might react differently. They could – in the face of persistent inflation pressures, perhaps tied to new Covid-19 strains, revert to their old response to inflation. Central banks could also be forced to be more aggressive if inflation expectations become de-anchored. We would be faced with inflation significantly above target, rising interest rates and falling growth: a classic stagflation scenario that is bad for both bonds and equities. Second, we could be wrong about growth prospects. The chart shows how different our and the market’s view of future Fed rate hikes is from how the Fed might have reacted historically to the current mix of slack and inflation. In the past, we believe the Fed would have been pushing up rates in 2021 - again helping confirm this is a new regime. It’s different this time U.S. CPI inflation, federal funds rate and estimates, 1990-2025 Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, Federal Reserve Board, U.S. Bureau of Labor Statistics, Bloomberg, with data from Haver Analytics, December 2021. Notes: The chart shows the U.S. nominal federal funds rate (orange line), year on year headline CPI inflation (yellow) and some projected paths of the nominal federal funds rate. The U.S. CPI shown from 2022 - 2025 are our estimate embedded in our Capital Market Assumptions. The dotted red line shows our own projection of the federal funds rate. The purple line shows the path that would have been implied by a simple monetary policy rule linking the choice of policy rate to the rate of inflation and the level of the output gap. The pink line shows the current market-implied path.

Staying invested How to thrive in this new market regime? We prefer equities in the inflationary backdrop of the strong restart. We favor DM stocks over as we dial down risk slightly amid rising risks to our base case. We are underweight DM government bonds – we see yields gradually heading higher but staying historically low. We prefer inflation- linked bonds, partly as portfolio diversifiers. On a strategic horizon, we like private markets for their diversification and return potential. About Jason Dooris

I have created and designed marketing and growth strategies for some of the world’s recognisable brands including Amazon, Deloitte, Saatchi and Saatchi, Optus, Virgin Mobile, Big W, Woolworths Supermarkets, Dan Murphys, Nespresso and Landlease. I have also worked with many Government departments on culture change and identity branding.

I am passionate about people leadership and development - empowering and engaging large marketing and brand teams through coaching, training, and mentorship for performance excellence. I currently lead a global/remote team across multiple locations including Australia, Argentina, Hong Kong and China.

I have a proven history of achievement in delivering corporate growth plans, and successful marketing initiatives to stimulate revenue growth and outperform sales objectives and have strong digital technology capabilities in advertising, communications, social media, marketing, and creative agency management.

My career experience has enabled me to present and speak across numerous platforms and industries as a subject matter expert, namely: ABC News, Sunrise, for the Australian Government, IBM Annual Global Conference, Emirates Annual Conference, AMP Board, New York Art Directors Club, Media & Marketing Europe, Australian Financial Review, and Web Summit.

I also volunteer my time and give back to the community via Board and Committee memberships.

Some key achievements and skills:

Ø Exceptional abilities in the development/implementation of marketing and growth innovations, ensuring business sustainability and continuous growth while cultivating strategic partnerships.

Ø A high impact leader and influencer with proven expertise in directing/coordinating all top to bottom functions of marketing, media, data analytics, traditional, & digital creative campaigns, business processes and performance groups.

Ø Completed large scale advertising and marketing projects, managing the entire product lifecycle, including research, prototype development, manufacturing, sales, branding, and marketing.

Ø Outstanding business and financial acumen with a forward-looking approach and collaborative styles.

Ø Interpersonal dexterity and executive influencing skills to build and sustain strong and mutually beneficial professional relationships with key stakeholders, clients, and staff members.

My area of expertise includes Brand Awareness & Integration, New Business Development, Team Leadership & Direction, Public Speaking Abilities, Consultation Services, Growth Strategies Implementation, Commercial Business Acumen, Hard-Hitting Negotiations, Stakeholder Engagement, Course Marketing, Business Transformation, Marketing & Advertising, Product Development, Risk Mitigation, Advertising and Media Solutions.

Feel free to email me at or visit my personal website

“Its been an exciting first half!” Jason Dooris

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