Market Overview – May 2022

Inflation (of prices) or deflation (of growth) ? · 10 May 2022

Earlier this month, fears of accelerating inflation continued to be the primary concern for investors, with figures showing record levels in all regions. Following the commodity shock generated by the war in Ukraine, investors and economists are trying to identify if the massive price explosion is spreading to wages. In this environment, logically, interest rates continued to rise at the same pace as the previous month. As a result, bond investments mechanically showed strongly negative performances, especially for long maturities. At the end of the month, the pessimism of bond investors spread to equity investors. Indeed, inflation and rising interest rates made them fear a marked slowdown in the economy and corporate profits. By circular effect, these growth fears slow down the increase of interest rates. If the economy slows significantly or enters a recession, investors tend to sell risky assets, especially stocks, to buy defensive assets, especially bonds. This has resulted in a stabilization of interest rates and a sharp correction in equity indices. ...

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