Themes Remain The Same

Entering the final third of 2022, many of the themes that have been prevalent throughout this tumultuous year remain the same – central banks, bond yields, and inflation all remain front and centre, says an RBC Harbour Group publication. Stock and bond prices have broadly been moving in the same direction for most of the year. Going back to 1980, stocks and bonds have posted negative returns at the same time about 1.4 per cent of the time on a rolling one-year basis, so these are unusual times indeed. With inflation still driving the monetary policy bus, this trend seems set to continue. However, inflation remains the lynchpin for global markets and indicators continue to signal that it is peaking. As it stands right now, both the stock and bond markets have one thing in common – both are poised to benefit from inflation putting in a clear peak and establishing a downward trend toward central bankers’ two per cent target. This has the potential to unleash a virtuous cycle whereby lower inflation feeds through to lower bond yields and allows central bankers to take their foot off the brakes, undoing some of the forces that have been acting against both the stock and bond market this year.