- Heightened volatility as inflation seeks a landing spot
- A continued case for value as the economic cycle evolves
- Attractive opportunity in select growth stocks
Market overview and outlook
Inflation peaks and market rallies often go hand in hand. Since 1927, the average S&P 500 return in the 12 months following an inflation crest was 11.5%, as shown in the chart below. June’s Consumer Price Index (CPI) reading of 9.1% may well have marked the high for this cycle, and we saw a relief rally in equities in anticipation of July’s lower figure. But a peak in inflation does not mean a return to the low-rate environment we saw post the Global Financial Crisis (GFC).
The question now is how fast can inflation fall and where does it come to rest? We don’t see a quick retrenchment or a return to the once familiar 2%, keeping the Fed in hiking mode. This implies more volatility and a need for caution and balance in equity allocations.