Environment Difficult For Rest Of Year

The war in Ukraine, COVID-19 lockdowns in China, and central bank monetary tightening are likely to keep the investing environment difficult for the second half of 2022, says T. Rowe Price’s mid-year market outlook for 2022. In the near term, the war will likely continue to impact global commodity markets, keeping food and gas prices high, but over the longer term it could accelerate the shift to renewable energy. Rising interest rates punished equity valuations in the first half and rising economic concerns could lead to a slowdown in corporate earnings and put further pressure on stock prices. It warns inflation can trigger a growth shock, given that higher energy and food prices are, in effect, a tax on consumers who are the main engine of global economic growth. With interest rates rising, continued earnings gains will be needed to support positive equity returns, but higher wage and input costs could cut into profit margins and inflation raises the risk that the Fed will hike rates too aggressively, increasing the cost of capital and causing a recession. Some investors now question whether inflation has already peaked. There have been anecdotal signs in some markets that price pressures are easing – such as a slowdown in home price appreciation and cooling demand for labour, it says.