- Russia-Ukraine War: Loomis Sayles’ base case assumes a prolonged war that lasts months, if not years. Sanctions on Russia should lead to a material tax on global growth. Pressure to importers of fuel, food and minerals are expected.
- Macro Drivers: Rising consumer and producer prices, tightening financial conditions, volatility and rising interest rates underpin Loomis Sayles’ view that markets are in the late expansion phase of the credit cycle. This late expansion phase could persist for several quarters on the back of solid employment metrics and aggregate demand.
- Credit: A less robust, but still favorable, operating environment for corporates is expected. The long-duration nature of investment grade corporates can be challenging for total returns in a rising rate environment. But, the team believes the bulk of the rise in long-end US Treasury yields is likely behind us.
- Government Debt & Policy: The stockpile of negative yielding debt outstanding around the globe has plummeted since the start of 2022. US yield curve is likely to continue flattening. Yields across developed Europe are likely to remain under pressure. EM government yields are beginning to look attractive after a volatile start to 2022.
- Equities: The war in Ukraine has disrupted global equity markets. Outside the US, downward revisions to earnings are likely. US earnings are expected to remain strong, albeit less robust than in 2021. Cyclical sectors like energy, materials, and industrials are likely to drive growth, along with technology and communication services.