glass globe ball on paper

Insights and Strategies

Make It Stop!

Global markets have remained very turbulent over the past several months, which given the prevailing wall of worries for many of us, has only added further to investor nausea. The teacups rides, which are a staple at most theme parks, comes to mind. At first, its all smiles and laughter, but once the spinning gets going and the velocity picks up, it’s not too long until riders are begging for it to stop! Similarly, while volatility in markets is normal and in most cases appreciated by investors, who can opportunistically add to new or existing positions at lower prices, the level of volatility in markets this year has been anything but normal. The good news is that you are not alone. Investors across the board from retail to institutional are feeling the pinch and have struggled to allocate capital amid the volatility. The bad news is that the level of volatility won’t stop until the ride is over, so hold on for more turbulence along the way.

High Inflation leads to Higher Rates, Slower Growth, Lower Valuations and Lower Earnings...

Stubbornly high inflation, rapid increases in interest rates/yields, have caused asset prices including equity valuations to re-rate lower. Elevated inflation, higher rates, a war in Europe and ongoing lockdowns in China have also resulted in a material downside revision to global economic growth for 2023 versus at the start of the year. Additionally, while third quarter corporate earnings in the U.S. have come in better than expected, earnings expectation for 2023E are beginning to be revised lower, with more downside in our view.

When Will it Stop?

Historically speaking over the past 20+ years, each time financial conditions have tightened in the U.S., we have seen a corresponding increase in yields across the curve, including notable increase in U.S. 10-year yields. Corporate earnings, however, have typically weakened with a lag (approx. two years after real yields peak) as rate increases and tighter policy make their way into the real economy. With policy tightening efforts and higher rates only commencing in a material way at the start of this year, we expect earnings to weaken further in the coming quarters even if the pace of policy tightening by central banks moderates from current levels.


U.S. 10-Year Treasury Real Yields [LHS]; S&P 500 EPS NTM [RHS]


View full PDF

Client Insights