(Bloomberg) – Move away from US stocks and bonds next year and look for better returns in Europe and Japan.
That’s the advice of Morgan Stanley’s strategic team, which sees monetary support fade and high valuations dampen U.S. assets in 2022, even as growth improves and inflation moderates. The fundamentals are more attractive in Europe and Japan, where central bankers will be more patient and inflationary pressures weaker, according to strategists in their annual investment outlook.
“We think 2022 is really about the ‘mid to end of the cycle’ challenges: better growth in the face of high valuations, tightening policy, exuberant investor activity, and higher inflation than most investors are used to it, ”strategists led by Andrew Sheets wrote on Sunday. . “We see many challenges, including the decline in the S&P 500 and US 10-year yields well above expectations.”
After a year dominated by relentless stock gains and a massive sell-off of bonds, strategists have started to market their calls for 2022 with the threat of inflation hanging over the minds of investors. Last week Goldman Sachs Group Inc. said it expected less impressive returns on risk assets as the business cycle matures.
Morgan Stanley sees the S&P 500 ending 2022 at 4,400, about 6% below current levels. Its strategists are forecasting 10-year yields to reach 2.10% by the end of next year thanks to improving growth and rising real rates, from 1.55% on Monday.
Global inflation will peak this quarter and moderate over the next 12 months thanks to easier year-to-year comparisons and reduced pressure on the supply chain, the bank’s strategists wrote. American. A “warmer and faster” recovery will continue, fueled by strength in consumer spending and capital investment, they said.
Their subdued market expectations come amid a larger debate at the bank over the outlook for US monetary policy. Morgan Stanley economists predict that the Federal Reserve will not hike interest rates until 2023, contrary to the more hawkish views of their own chief executive.
Morgan Stanley economists see Fed hike in 2023, differ from Gorman
Delays in rate hikes will eventually cause the dollar to weaken after a period of strength early next year, according to the note.
Outside of developed markets, Sheets’ team urged patience, suggesting investors wait until the greenback weakens before considering emerging market stocks and bonds. In foreign currencies, they favor the Canadian dollar and the Norwegian krone and expect a largely stable yuan.
On the commodity front, the bank prefers oil to gold and suggested metal prices face a tough outlook.
Morgan Stanley 2022 Recommendations
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