George Maris, Co-Head of Equities – Americas, says inflation, slowing economic growth, shifts in government policy and the lingering effects of COVID-19 have combined to make this one of the most uncertain periods for investors.

Key Takeaways

• With inflationary pressures mounting and significant changes to monetary and government policy looking increasingly possible, the near-term outlook for financial markets has become especially murky.
• Slowing global economic growth has also raised the specter of stagflation, though such periods are rare and tend to be short in duration.
• Regardless, investors should be proactive, preparing for downside risks while taking advantage of opportunities that could be created by volatility.

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George Maris: I think that the outlook for the forecastable future is probably as murky as I can recall in my investment career. The reasons for this are multifold. One, we still have the Delta variant rolling out there. We don’t know whether or not we have got herd immunity, whether we have been able to put it to rest, but it will continue to be a concern.

In addition, we are also seeing uncertainty come from heightened regulation out of China. It is a much more intrusive level of regulation than we have seen in the past and it is much more encompassing than we have seen in the past. Governmental policy is probably as uncertain as I can recall in a long time. There is clearly a change in the tenor of conversations between governments and business – much more assertive, much more intrusive.

In addition, we have got significant potential for change from a monetary schematic perspective globally. We have operated in an environment of easy money essentially for the last decade-plus, really since the GFC [Global Financial Crisis]. It does look like we are going to be embarking on a situation where, at the margins, we are incrementally tightening. You are seeing that happen in the U.S., with the Fed [Federal Reserve] beginning to significantly consider tapering activities, and it is likely to occur this year. But you are also seeing the Bank of England being very assertive with respect to its desire to engage in tapering activities as well, and you are likely to see that occur globally.

Moreover, we are also seeing a slowdown. Now, it is a slowdown off of tremendous growth rates, but slowdowns nonetheless, which are causing people to start thinking about stagflation. I don’t think stagflation is likely. It is a risk, but it is a highly unusual phenomenon; they tend not to last particularly long. I do think inflation, though, is something that is a higher concern now than it has been for a long period of time. Don’t get me wrong, there is still substantial disinflationary forces that are out there. That said, there is more wage-push inflation than we have seen in a long period of time. There are more supply constraints, both with respect to how we manage life with COVID, plus regulatory constraints, higher tariffs, less free trade. We just have had more blockages in the system that are going to be much more inflationary going forward.

These are all substantial regime changes, and so the outlook is much more murky. It really highlights the need to be very active with respect to your investing, be much more dynamic, proactive, anticipating the changes and then taking advantage of that volatility as those opportunities appear.

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