Global Markets Review & Outlook Q2 2022

Equities’ rocky, fear-filled first half intensified in Q2, with global developed markets approaching a -20% decline in May and piercing that threshold in mid-June. From a technical standpoint, history will recall this as a bear market, although we don’t think that a backward-looking label has much forward-looking significance. The difference between a steep correction and a shallow bear market is not meaningful as both usually precede strong rebounds.

• Continued Negative Volatility is Not a Foregone Conclusion: Global markets have likely priced in well-known fears including a mild recession, which is far from certain, in our view. Meanwhile, positive economic factors are largely ignored.
• Investor Sentiment Supports an Unexpected Recovery: Depressed sentiment, driven by concerns on inflation, global monetary policy, China’s lockdowns and a variety of other factors has significantly lowered investor expectations, increasing the likelihood that markets see a better-than-expected outcome.
• Global Markets Typically Reward US Political Gridlock: The incumbent party routinely loses power during the midterm year, reducing political uncertainty and the likelihood of extreme legislation. Increased gridlock likely acts as a tailwind for global markets in the back half of the year.